How does Big O Tires recognize revenue from franchise and royalty fees?
Big_O_Tires Franchise · 2025 FDDAnswer from 2025 FDD Document
sociated costs are expected to be incurred in performing such services. Revenues for franchise and royalty fees are recognized over time as the Company satisfies its performance obligations to its franchisees, as described below. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company records reductions to revenue for customer programs and incentive offerings, including special pricing agreements, certain promotions, and other volume-based incentives.
Franchising revenue consists primarily of royalties, national advertising fund contributions, and initial and renewal franchise fees. The basic terms of the franchise agreements are as follows: the initial franchise fee is due upon the signing of the franchise agreement, royalty fees are due from franchisees monthly and are equal to a percentage of gross sales for the previous month, the initial term of the agreement is 10 to 20 years with the ability to renew for an additional 10 to 20 years, subject to certain conditions and a renewal fee, and the location must be pre-approved.
Monthly royalty fees are earned and recognized when franchisee sales occur. During Fiscal 2024, 2023, and 2022, Big O franchise royalty fees typically ranged between 3.5% and 5% of franchisees' adjusted gross sales. Midas royalty fees ranged between 2% and 10% of net sales for each period presented.
Source: Item 23 — RECEIPTS (FDD pages 102–535)
What This Means (2025 FDD)
According to Big O Tires' 2025 Franchise Disclosure Document, the company recognizes revenue from franchise and royalty fees over time. This means that Big O Tires doesn't record all the revenue upfront when the franchise agreement is signed or when royalty fees are received. Instead, they recognize it gradually as they fulfill their obligations to support the franchisee.
Big O Tires franchising revenue primarily comes from royalties, national advertising fund contributions, and initial and renewal franchise fees. Royalties are a percentage of the franchisee's gross sales, and these are earned and recognized each month when the franchisee makes sales. During fiscal years 2024, 2023, and 2022, Big O Tires franchise royalty fees typically ranged between 3.5% and 5% of franchisees' adjusted gross sales. Contributions to national advertising funds are also reported as part of the royalty revenues.
For a prospective Big O Tires franchisee, this means that the fees you pay contribute to an ongoing relationship where Big O Tires provides continuous support. The initial franchise fee is due upon signing the agreement, and royalty fees are paid monthly based on a percentage of gross sales. The initial term of the franchise agreement is between 10 to 20 years, with the possibility of renewal for an additional 10 to 20 years, subject to certain conditions and a renewal fee. This revenue recognition method aligns the franchisor's income with their ongoing service and support to the franchisee, which is a common practice in franchising.