How does Christian Brothers Automotive determine the standalone selling price for pre-opening services?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
er 31, 2024 and 2023
As part of the contract with the customer, the Company requires new franchisees to make upfront payments from new franchisees to gain access to a completed franchise store. These upfront payments are considered fees and are allocated to two distinct performance obligations - upfront pre-opening services and the granting of license to operate a CBAC franchise store. The upfront fees are collected in installments; the first installment is collected at the signing of the franchise agreement and the remainder is collected approximately two weeks before the store opens.
The total transaction price for the upfront franchise fees is determined based on the consideration the Company expects to receive. The transaction price is allocated to the performance obligations based on their relative standalone selling prices. The standalone selling price for the pre-opening services is determined based on the estimated cost plus a margin, while the standalone selling price for the granting of the franchise store is based on market rates for similar franchise arrangements.
The performance obligation associated with pre-opening services includes services such as site selection, training, and initial marketing support. The pre-opening services that are not distinct from the obligations under the license rights are bundled with the license rights obligations to form a single performance obligation. Revenue for these services is recognized at a point in time when the services are completed, which is generally when the franchise location opens to the general public.
The performance obligation associated with the granted license is satisfied over time as the franchisee operates the store. The revenue allocated to this obligation is recognized on a straightline basis over the franchise agreement term of 15 years.
Royalties
The Company royalties are generated based on the terms of franchise agreements and FDD with franchisees.
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, the company requires new franchisees to make upfront payments to gain access to a completed franchise store. These payments are considered fees and are allocated to two performance obligations: upfront pre-opening services and the granting of a license to operate a Christian Brothers Automotive franchise store. These upfront fees are collected in installments, with the first installment due at the signing of the franchise agreement and the remainder collected approximately two weeks before the store opens.
The total transaction price for these upfront franchise fees is based on the consideration Christian Brothers Automotive expects to receive. This price is then allocated to the performance obligations based on their relative standalone selling prices. For pre-opening services, the standalone selling price is determined by estimating the cost of these services and adding a margin. The standalone selling price for granting the franchise store license is based on market rates for similar franchise arrangements.
The pre-opening services include site selection, training, and initial marketing support. If these services are not distinct from the obligations under the license rights, they are bundled with the license rights obligations to form a single performance obligation. Revenue for these services is recognized when the services are completed, typically when the franchise location opens to the public. The revenue associated with the granted license is recognized over time, specifically on a straight-line basis over the 15-year term of the franchise agreement.