How does Cd One Price Cleaners recognize marketing fund fees?
Cd_One_Price_Cleaners Franchise · 2025 FDDAnswer from 2025 FDD Document
-----------------------------------------------|----------------------|---|----------------------|----------------------| | Deferred revenue (for recognition | $ | - | $ - | $ - | | the following year): | | | | | | Initial franchise fees | | | | |
The Company's franchise agreements also require the payment of marketing fees, which are intended to reimburse the Company for expenses associated with advertising and marketing programs. Marketing fund fees, which are a percentage of revenues of each franchised entity, are recognized as revenue when the underlying sales occur.
1. Summary of Significant Accounting Policies (cont'd)
Marketing Fund – The Company administers a marketing fund on behalf of the franchise and affiliate-owned locations to develop and execute advertising and sales promotion programs. There were no affiliate-owned locations at December 27, 2024 and December 29, 2023. Each location is required to contribute the amount that the Company periodically specifies, not to exceed three percent (3%) of revenue. The Company has the right at any time to terminate the marketing fund upon written notice.
Source: Item 22 — Contracts (FDD page 72)
What This Means (2025 FDD)
According to Cd One Price Cleaners's 2025 Franchise Disclosure Document, marketing fund fees, which are a percentage of revenues from each franchised entity, are recognized as revenue when the underlying sales occur. This means that Cd One Price Cleaners accounts for these fees as revenue at the same time that the sales generating those fees take place at the franchise location.
This accounting practice has implications for prospective franchisees. It indicates that the marketing fund contributions are directly tied to sales performance. Franchisees can expect that their marketing fee obligations will fluctuate in direct proportion to their revenue.
For the twelve months ended December 27, 2024, the required contribution rate was three percent of revenue. The FDD also mentions additional marketing fund contributions for Customer Acquisition Payments in an amount equal to 3.5% of Gross PUD Revenue for each Standard Customer and approved Non-Standard Customer, and additional contributions to the Marketing Fund for the Customer Development and Retention Payments in an amount equal to two percent (2%) of the Gross PUD Revenue.