What are 'Direct Costs' related to the Buff City Soap gift card program?
Buff_City_Soap Franchise · 2025 FDDAnswer from 2025 FDD Document
The estimate of the average handling costs shall be made by the issuer of the Gift Card.
The Issuer shall review and (to the extent appropriate) adjust its estimates at reasonable intervals, not less frequently than annually.
The Issuer may make its estimates by any reasonable method and, at its option, may use the same estimated average handling costs for all franchisees, in its sole discretion. "Issuer Expenses" means the sum of Issuer's Direct Costs and Issuer's Indirect Costs, with no reduction for any potential income from unredeemed Gift Cards. "Direct Costs" means and includes all costs identified specifically with the Issuer services, including an allocable portion of costs for compensation, bonuses and travel expenses attributable to employees directly engaged in providing Issuer services, for materials and supplies directly consumed in providing Issuer services, and for other direct costs, such as costs of printing, storing, and shipping Gift Cards, shared services costs, costs of marketing and promotional services provided by any third party service providers, promotional discounts on Gift Cards, and license fees for intellectual property.
Direct Costs shall not include interest expense on indebtedness not incurred specifically for the benefit of you. "Indirect Costs" means and includes all costs that are not specifically identified with the Issuer services but that relate to the Direct Costs.
Indirect Costs may include (for example) costs with respect to utilities, occupancy and other overhead burdens.
The estimate of Issuer Expenses for each measurement period, which shall be at least quarterly, shall be made by Issuer or its agent.
Issuer (or its agent) may make its estimates by any reasonable method.
Source: Item 5 — INITIAL FEES (FDD pages 15–23)
What This Means (2025 FDD)
According to Buff City Soap's 2025 Franchise Disclosure Document, 'Direct Costs' related to the gift card program include all costs specifically identified with the Issuer services. These costs encompass an allocable portion of compensation, bonuses, and travel expenses for employees directly involved in providing Issuer services. Additionally, Direct Costs cover materials and supplies directly consumed in providing Issuer services, as well as other direct expenses such as printing, storing, and shipping gift cards. Shared services costs, costs of marketing and promotional services provided by third-party service providers, promotional discounts on Gift Cards, and license fees for intellectual property are also included.
For a prospective Buff City Soap franchisee, understanding these Direct Costs is crucial for budgeting and financial planning. These costs are factored into the 'Issuer Expenses,' which are used to determine the service fees for the gift card program. The Issuer, who is responsible for managing the gift card program, will estimate these expenses at least quarterly.
It's important to note that Direct Costs do not include interest expense on indebtedness not incurred specifically for the franchisee's benefit. This distinction helps to ensure that franchisees are not burdened with costs unrelated to the gift card program's operation. The Issuer has the discretion to use the same estimated average handling costs for all franchisees, which could simplify cost calculations but may not reflect the specific circumstances of each location.