How does the definition of Net Sales in Item 6 impact the royalty fee calculation for a Checkers franchise?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
ement.
ITEM 6 OTHER FEES
FRANCHISE AGREEMENT
| TYPE OF FEE | AMOUNT | DUE DATE | REMARKS (See Note 1) | |---|---|---|---| | Royalty | 4% of your Net Sales | Semi-monthly, | Net Sales is defined in Note 2 | | | or 2% of your Net | on or before the | below. See Note 2 for the | | | Sales if you operate a | 5th and 20th | 2025 Growth Incentive | | | Restaurant from a | day of each | Program and Reimage | | | Non-Traditional Site. | month. | Incentive Program. | | National Production Fund Contributions (See Notes 3 and 4) | You will be required to pay up to 3% of your Net Sales (currently, 2.65% of your Net Sales). | Monthly, on the 5th day of each month. | Varies. The amount is credited toward your 4.5% advertising expenditure requirement. Your contribution rate is subject to change from time to time. | | Cooperative Advertising (See Notes 4 and 5) | Determined by your local or regional advertising cooperative. | Monthly, on the 5th day of each month. | Payments to local or regional advertising cooperatives are credited toward your 4.5% advertising expenditure requirement. |
| TYPE OF FEE Local Advertising Fee (see Notes 5 and 6) | AMOUNT The difference between the current NPF contribution rate and 4.5% of your Net Sales. | DUE DATE Must be spent on advertising and promotion during each of your fiscal quarters. | REMARKS (See Note 1) If your Franchised Restaurant is located in a geographical area where we have not established an advertising cooperative, then, we may require you contribute to an advertising purchasing collective that we establish and control.
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the definition of "Net Sales" directly impacts the royalty fee calculation. The royalty fee is a percentage of Net Sales, so a clear understanding of what constitutes Net Sales is crucial for franchisees. For a standard Checkers restaurant, the royalty fee is 4% of Net Sales, paid semi-monthly. However, for restaurants at non-traditional sites, the royalty fee is reduced to 2% of Net Sales.
Net Sales is defined as all revenue derived from operating the franchised restaurant, including sales of food, beverages, and other products and services, whether from cash, check, credit/debit card, barter exchange, trade credit, or other credit transactions. However, this total revenue is reduced by certain items. Specifically, Net Sales excludes all federal, state, or municipal sales, use, or service taxes collected from customers and paid to the appropriate taxing authority. It is also reduced by the amount of any documented refunds, credits, allowances, adjustments, promotional discounts, and charge-backs that the franchised restaurant provides to customers in good faith.
This definition ensures that franchisees are not paying royalties on taxes collected on behalf of the government or on amounts that were genuinely not realized as revenue due to discounts or refunds. The Net Sales definition provides a standardized method for calculating royalties, ensuring consistency across all Checkers franchise locations. Franchisees should carefully document all exclusions and reductions to accurately calculate and report their Net Sales, as this directly affects the amount of royalty fees owed to Checkers. Understanding this definition is essential for managing the financial obligations of the franchise and ensuring compliance with the franchise agreement.