What is excluded from the definition of 'Gross Sales' when calculating the royalty fee for a Chatime franchise?
Chatime Franchise · 2025 FDDAnswer from 2025 FDD Document
| Fee(1) Type of | Amount | Due Date | Remarks |
|---|---|---|---|
| Royalty | 5.0% of Gross Sales | Tenth day of the month calculated based on the Gross Sales of the previous month | "Gross Sales" means the total actual gross charges for all products, merchandise, and services sold to your Store's customers for cash or credit, whether such sales are made at or from the premises of your Store or any other location or other channels of distribution if approved in writing in advance by us and including proceeds from any business interruption or similar insurance coverage, but excluding (i) sales, use, service, or excise taxes collected from customers and paid to the appropriate taxing authority and (ii) all customer refunds, adjustments and promotional discountsincluding any senior citizens discount. |
Source: Item 6 — Other Fees (FDD pages 13–17)
What This Means (2025 FDD)
According to Chatime's 2025 Franchise Disclosure Document, the royalty fee is 5.0% of Gross Sales, which is calculated on the tenth day of each month based on the previous month's sales. Gross Sales includes the total actual gross charges for all products, merchandise, and services sold to customers for cash or credit, whether sold at the store's premises or other approved locations. It also includes proceeds from any business interruption or similar insurance coverage.
However, the calculation of Gross Sales for royalty purposes excludes specific items. These exclusions are (i) sales, use, service, or excise taxes collected from customers and paid to the appropriate taxing authority, and (ii) all customer refunds, adjustments, and promotional discounts, including any senior citizens discount.
For a prospective Chatime franchisee, this means that the royalty fee is based on the store's revenue after deducting these specific items. This is a common practice in franchising, as it ensures that franchisees are not paying royalties on amounts that are passed through to taxing authorities or refunded to customers. Understanding these exclusions is crucial for accurately calculating and reporting Gross Sales, which directly impacts the royalty fees owed to Chatime.