How is 'Gross Profit' calculated for a Chop5 Salad Kitchen restaurant?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
set forth in Item 19 of this Disclosure Document.
- "Franchised Restaurant" means any Restaurant that is owned by a franchisee.
- "Gross Profit" means the financial performance metric calculated as Gross Sales minus COGS.
- "Gross Sales" means total revenue from all goods and services sold less: (a) taxes; (b) customer refunds; (c) revenue from the sale of furniture, fixtures and equipment in the ordinary course of business; (d) the value of approved coupons, vouchers or similar items at the time of redemption; and (e) tips paid to and retained by staff members as a gratuity.
- "Imputed Fees & Costs" means the royalty fees, brand fund fees and Local Advertising Commitment (LAC) a Company-Owned Restaurant would have incurred if it was a Franchised Restaurant, less any amounts actually incurred by the Company-Owned Restaurant for these categories of fees and costs.
- "Labor Expenses" means and includes all Restaurant labor expense, including: manager salaries; hourly wages for shift managers and Restaurant employees; payroll taxes; and vacation pay for Restaurant employees.
- "Marketing Expenses" means all costs and expenses incurred for internal and external advertising, marketing and promotional activities, including expenses associated with incorporating the menu into the customer experience.
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, Gross Profit is calculated as Gross Sales minus COGS (Cost of Goods Sold). Gross Sales includes total revenue from all goods and services sold, less taxes, customer refunds, revenue from the sale of furniture, fixtures, and equipment in the ordinary course of business, the value of approved coupons, vouchers, or similar items at the time of redemption, and tips paid to and retained by staff members as a gratuity. COGS includes variable costs directly associated with the provision and delivery of goods and services, such as costs of food, beverage, and paper.
It is important to note what is not included in COGS. According to the 2024 FDD, COGS does not include fixed costs, overhead costs, Labor Expenses, Marketing Expenses, or Excluded Expenses. Excluded Expenses include interest paid on debt, taxes, depreciation, amortization expenses, 3rd party delivery charges, kitchen expenses (supplies, smallwares, etc.), payroll processing/service fees, employee uniforms, food license fees, and any other miscellaneous expenses not included in COGS, Labor Expenses or Marketing Expenses.
For a prospective Chop5 Salad Kitchen franchisee, understanding this calculation is crucial for assessing the potential profitability of the franchise. By carefully tracking Gross Sales and COGS, a franchisee can determine the Gross Profit and then further analyze other expenses to understand the overall financial health of their restaurant. The FDD provides additional financial performance metrics, such as Adjusted Gross Profit (Gross Profit minus Labor Expenses and Marketing Expenses) and Adjusted Gross Profit (Less Imputed Fees & Costs), which offer a more comprehensive view of potential earnings after accounting for various operating costs and imputed fees.