Are tips included in Carvel's definition of Net Sales?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
that are paid to you by a customer or by a third-party delivery or catering service (e.g., Uber Eats, Postmates, Grubhub, ezCater, or DoorDash) (a "TPS") in connection with delivery or catering services related to your Franchised Business (recognizing that though the TPS may pay you an amount equal to the purchase price charged to the customer less a commission, other fees, and any discounts, credits, or coupons applied to the order, such commission, fees, discounts, credits, and coupons will not be deducted from your Net Sales). 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, tips are explicitly excluded from the calculation of Net Sales. Net Sales is a crucial figure because it is used to calculate royalty fees and advertising contributions that franchisees must pay.
The document defines "Net Sales" as all revenues generated by the Franchised Business, whether the sales are evidenced by cash, check, credit, charge, account, barter or exchange. It includes monies, gift card redemptions, or credit generated by or received from (i) the sale of Approved Products or tangible property and (ii) services performed from, at, or in connection with the Franchised Business, including off-premises and on-premises services. Net Sales also include all ancillary charges or fees, including delivery fees and other service charges.
However, the definition specifically excludes certain items from Net Sales, such as the initial sales or reloading of gift cards, discounts, refunds made in good faith to customers, the discounted portion of employee meals, sales, meals, use or excise tax imposed by a governmental authority directly on sales and collected from customers, the sale of equipment used in the operation of the Franchised Business, and tips. This exclusion of tips from Net Sales is beneficial for franchisees, as it reduces the base amount on which royalty fees and advertising contributions are calculated, thereby lowering these expenses.