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 profitability?
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.
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, franchisees are obligated to pay several ongoing fees that contribute to Carvel's revenue. The Royalty Fee is 6% of the Net Sales of the Franchised Business, payable each week. In addition to the royalty fee, franchisees must also contribute to advertising. 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 co-branded franchises, these fees are collected jointly by Carvel and the Co-Branded Franchisor based on the Net Sales attributable to each brand. These fees are crucial for Carvel, as they represent a significant portion of the franchisor's ongoing revenue and profitability.
These ongoing fees are defined as non-refundable and are calculated based on "Net Sales," which includes all revenues generated by the franchise, whether in cash, credit, or other forms of exchange. Net Sales encompasses sales of approved products, tangible property, and services performed at or related to the Franchised Business, including off-premises services like catering and on-premises services. This broad definition ensures that all revenue streams contribute to the calculation of royalties and advertising fees, maximizing the franchisor's income.
The FDD also mentions that the franchisee must submit reports or statements concurrently with royalty payments, as required under Section 14.3, which allows Carvel to verify the accuracy of sales figures and ensure proper payment of fees. Furthermore, Carvel has the right to amend Schedule A, which outlines the Support Services and Service Fees, provided that changes to the fees in any calendar year will not exceed either 50% of the fee at the start of the year or the increase in Carvel's actual costs to provide the support services. This amendment can impact the overall financial obligations of the franchisee and, consequently, Carvel's revenue streams.