What are the franchisee's obligations regarding the payment of royalties and other fees for a Carvel franchise as outlined in Item 9, and how does this relate to the franchisor's financial performance?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
- 9. Section 3.2.A. (Royalty Fee): The Royalty Fee shall be 6% of the Net Sales of the Franchised Business, payable each week on the Net Sales of the Franchised Business for the preceding week (or on any other basis stated in the Manuals or in our written notice to you). We and the Co-Branded Franchisor will jointly collect the Royalty Fee from you based on the Net Sales of the entire Co-Branded Franchise.
10. Section 3.2.B. (Advertising Contribution): The Advertising Contribution shall be in an amount we determine, in our sole discretion, which when combined with the Local Marketing Obligation (as specified in Section 10.1.E. (Local Marketing Obligation)) shall not exceed 5% of the Net Sales of the Franchised Business, payable each week on the Net Sales of the Franchised Business for the preceding week (or on any other basis stated in the Manuals or in our written notice to you). We will collect the Advertising Contribution from you based on the portion of the Net Sales of the Franchised Business that are attributable to products that we and the Co-Branded Franchisor mutually agree, in our and its sole discretion, to credit towards the Carvel® side of the Franchised Business. Pursuant to the Co-Branded Agreement, the Co-Branded Franchisor will collect an advertising contribution from you based on the remaining portion of the Net Sales of the Franchised Business that are attributable to products that we and the Co-Branded Franchisor mutually agree, in our and its sole discretion, to credit towards the Co-Branded Franchise's side of the Franchised Business.
If you fail to report the Net Sales of the Franchised Business to us for any reporting period as required in this Agreement, we have the right to make bank transfers or drafts for Royalty Fees and Advertising Contributions based on our reasonable estimate of the amounts for the Franchised Business and/or the data of the point-of-sale system and other equipment provided for in Section 12.8.
You must pay us interest on amounts not paid on time at the rate of 1.5% per month or portion of a month, but not more than the maximum interest rate permitted by applicable laws.
If you fail to submit timely, complete, and accurate reports, financial statements, tax returns, and statements of initial investment costs in accordance with Sections 14.3 (Systems and Reports), 14.4 (Financial Statements), 14.5 (Tax Returns), and 14.7 (Initial Investment Statements), we may charge you our then-current late fee (the "Late Reporting Fee").
The Late Reporting Fee is currently $50 per week that such report, statement, or return is late.
Payments of Comprehensive Support Fees will be drafted by Franchisor on behalf of Company from Franchisee's Designated Bank Account under Franchisor's electronic funds transfer or draft system ("EFT") one time per month on the same day that royalties and other fees due under the Franchise Agreement are first drafted for each month (the "Payment Date").
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, franchisees are obligated to pay several ongoing fees. The Royalty Fee is 6% of the Net Sales of the Franchised Business, and it is payable each week based on the Net Sales of the preceding week. The Advertising Contribution is determined by Carvel, but when combined with the Local Marketing Obligation, it cannot exceed 5% of the Net Sales of the Franchised Business, also payable weekly. For a co-branded franchise, both Carvel and the Co-Branded Franchisor jointly collect these fees based on the Net Sales of the entire co-branded operation. Net Sales include all revenues generated by the franchised business, whether in cash, credit, or other forms, including sales of approved products and services. These fees are crucial for Carvel's financial performance as they represent a recurring revenue stream that supports the brand's operations, marketing efforts, and overall profitability.
In addition to the royalty and advertising fees, Carvel franchisees may also incur other fees. If a franchisee fails to report Net Sales on time, Carvel has the right to make bank transfers or drafts for Royalty Fees and Advertising Contributions based on their reasonable estimate or data from the point-of-sale system. Interest is charged on late payments at a rate of 1.5% per month, or the maximum rate permitted by law. A Late Reporting Fee of $50 per week is charged for failing to submit timely, complete, and accurate reports, financial statements, and tax returns. Carvel may increase this Late Reporting Fee annually, subject to an Allowed Adjustment.
Furthermore, franchisees are required to pay Service Fees, which include the Comprehensive Support Fee and/or Billable Support Fee, for the Support Services provided by Carvel. These Service Fees are exclusive of any applicable taxes. Carvel reserves the right to amend Schedule A to reflect changes in Support Services or Service Fees, provided that any fee changes in a calendar year will not exceed 50% of the fee in effect at the start of the year or the increase in Carvel's actual costs to provide the Support Services. Franchisees will receive at least ninety days' notice of any such amendments. Payments of Comprehensive Support Fees are drafted monthly via electronic funds transfer on the same day as royalties and other fees.
These financial obligations are secured by a Guaranty of Payment and Performance, where the Guarantor (typically an owner of the Franchisee) guarantees the full and prompt payment and performance of all obligations to Carvel. This guaranty is a condition for Carvel entering into the Franchise Agreement. The agreement also specifies that Carvel may make bank drafts based on reports, point-of-sale data, audit results, or payment obligations outlined in the agreements. Franchisees must comply with any new procedures specified in the manuals to facilitate payment, and failure to do so may result in additional fees. These detailed financial arrangements ensure that Carvel maintains a steady income stream, while also placing significant financial responsibilities on the franchisee.