Are initial gift card sales included in Carvel's definition of Net Sales?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
Net Sales will not include (a) the initial sales or reloading of gift cards, (b) discounts, (c) the sale of food or merchandise for which refunds have been made in good faith to customers, (d) the discounted portion of employee meals, (e) sales, meals, use or excise tax imposed by a governmental authority directly on sales and collected from customers, provided that the amount for the tax is added to the selling price or absorbed therein and is actually paid by you to a governmental authority, (f) the sale of equipment used in the operation of the Franchised Business, or (g) tips.
Source: Item 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, initial sales or reloading of gift cards are not included in the calculation of Net Sales for royalty and advertising contribution purposes. However, when gift cards are redeemed, the revenue generated from those redemptions is included in Net Sales.
This distinction is important for Carvel franchisees because Net Sales is the base upon which royalty fees and advertising contributions are calculated. By excluding initial gift card sales, Carvel reduces the franchisee's immediate financial burden. However, franchisees should be aware that the revenue from the redemption of these gift cards will be subject to these fees.
This practice is fairly common in the franchise industry, as it avoids franchisees paying royalties on money that has not yet been used to purchase goods or services. It also incentivizes the sale of gift cards, as the franchisee only pays fees when the card is used, driving business to their location. Carvel franchisees should keep accurate records of gift card sales and redemptions to ensure accurate reporting and fee calculation.