What was the additional amount for Imputed LAC that Chop5 Salad Kitchen calculated for the Qualifying Restaurant?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
Costs", we included the total amount of brand fund fees the Qualifying Restaurant would have incurred if it was a Franchised Restaurant.
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- Imputed LAC: Each month, franchisees must spend a minimum amount of money on local advertising and marketing equal to the Local Advertising Commitment (LAC). The LAC is: (a) 8% of Gross Sales for the 1st year of operation; and (b) 3% of Gross Sales for the remainder of the term. For purposes of imputing fees and costs, we applied the LAC rate of 3% of Gross Sales based on the Qualifying Restaurant's opening date. For "Imputed Fees & Costs", we included the additional Marketing Expenses the Qualifying Restaurant would have incurred if it was a Franchised Restaurant. The additional amount for the Qualifying Restaurant was $8,919, calculated as the differ
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 45–48)
What This Means (2024 FDD)
According to Chop5 Salad Kitchen's 2024 Franchise Disclosure Document, the additional amount for Imputed Local Advertising Commitment (LAC) for the Qualifying Restaurant was $8,919. This figure represents the difference between what the restaurant should have spent on local advertising based on the franchise agreement (3% of gross sales, totaling $53,516) and the amount it actually spent on marketing expenses ($44,597).
For prospective Chop5 Salad Kitchen franchisees, this means that the company-owned restaurant in Polaris, Ohio, which is used as a benchmark, did not meet the required LAC spending. The franchise agreement stipulates that after the first year of operation, franchisees must spend 3% of gross sales on local advertising. The imputed LAC calculation is an attempt to show what the restaurant's financial performance would look like if it had adhered to this requirement.
It's important to note that this is an imputed cost, not an actual expense incurred by the Qualifying Restaurant. The purpose of including this imputed cost is to provide a more accurate representation of the fees and costs a franchisee would typically incur. Franchisees should consider this when evaluating the financial performance of the Qualifying Restaurant and understand that their actual marketing expenses may need to be higher than what was historically spent by the company-owned location to meet the LAC requirements.
This imputed cost is added to the "Adjusted Gross Profit" to arrive at the "Adjusted Gross Profit (Less Imputed Fees & Costs)" which provides a more conservative estimate of potential profitability for a Chop5 Salad Kitchen franchise. Franchisees should carefully review these figures and consider their own marketing strategies and local market conditions to estimate their potential expenses and profitability.