How are 'Imputed Fees & Costs' calculated for a Company-Owned Chop5 Salad Kitchen?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
: We prepared the FPR based on data we obtained from the POS system utilized by the Qualifying Restaurant. The data has not been audited.
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- Imputed Fees & Costs: The Qualifying Restaurant did not incur Imputed Fees & Costs during the Measuring Period. Imputed Fees & Costs include:
- Royalty fees (6% of monthly Gross Sales)
- Brand Fund Fees (1.5% of monthly Gross Sales)
- The difference between (a) the Local Advertising Commitment required by the Franchise Agreement (3% of monthly Gross Sales) and (b) the actual amount of Marketing Expenses incurred by the Qualifying Restaurant
This FPR discloses 2 sets of Adjusted Gross Profit figures, including: (1) "Adjusted Gross Profit" which is calculated based on actual expenses incurred by the Qualifying Restaurant and does not account for Imputed Fees & Costs; and (2) "Adjusted Gross Profit (Less Imputed Fees & Costs)" which is calculated in a manner that takes into account all Imputed Fees & Costs. Imputed Fees & Costs are discussed in more detail in Notes 3, 4 and 5 below.
- Imputed Royalty Fees: The Qualifying Restaurant did not pay royalty fees during the Measuring Period. The Franchise Agreement requires a royalty fee calculated as 6% of Gross Sales. For "Imputed Fees &
Costs", we included the total amount of royalty fees the Qualifying Restaurant would have incurred if it was a Franchised Restaurant.
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- Imputed Brand Fund Fees: The Qualifying Restaurant did not pay brand fund fees during the Measuring Period. The Franchise Agreement requires a brand fund fee calculated as: (a) 0.5% of Gross Sales for the 1st year of operation; (b) 1.0% of Gross Sales for the 2nd year of operation; and (c) 1.5% of Gross Sales for the remainder of the term. For purposes of imputing fees and costs, we applied the highest brand fund fee rate of 1.5% of Gross Sales based on the Qualifying Restaurant's opening date. For "Imputed Fees & 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 difference between (a) $53,516 (i.e., 3% of Gross Sales) and (b) $44,597 (the amount of Marketing Expenses actually incurred by the Restaurant).
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, 'Imputed Fees & Costs' represent the fees a Company-Owned Restaurant would have incurred if it were a franchised location, less any amounts the Company-Owned Restaurant actually paid for those fees and costs. These imputed fees include royalty fees, brand fund fees, and the Local Advertising Commitment (LAC). The purpose of calculating these imputed costs is to provide a more accurate comparison of the financial performance between company-owned and franchised locations.
Specifically, the royalty fee is calculated as 6% of monthly Gross Sales. The brand fund fee is calculated based on a tiered system: 0.5% of Gross Sales for the 1st year, 1.0% for the 2nd year, and 1.5% for the remainder of the term. For the financial performance representation, the highest rate of 1.5% was applied. The Local Advertising Commitment (LAC) is 8% of Gross Sales for the 1st year and 3% for the remaining term. For the financial performance representation, the LAC rate of 3% of Gross Sales was applied.
For the Qualifying Restaurant used in the Item 19 financial performance representation, the additional amount for the Local Advertising Commitment was $8,919. This was the difference between $53,516 (3% of Gross Sales) and $44,597 (the actual marketing expenses incurred by the restaurant). The imputed fees and costs for the qualifying restaurant totaled $142,710, comprised of $107,033 in royalty fees, $26,758 in brand fund fees, and $8,919 in LAC additional costs. Understanding how these imputed fees are calculated is crucial for prospective franchisees to accurately assess the financial performance data presented in Item 19 and to project their own potential earnings.