How does Christian Brothers Automotive generate royalties from its franchisees?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
4.05 Continuing Royalty. During the one-year period immediately following the Opening Date (the "Split Profits Review Period"), Franchisor and Franchisee will review the financial condition of the Franchisee at the end of each three-month period commencing on the Opening Date and determine whether any royalty payment shall be made to Franchisor from the Split Profits. No distribution or bonus from Split Profits shall be made to Franchisee without the prior written approval of Franchisor. After the end of the Split Profits Review Period, Franchisee must pay Franchisor a royalty fee each month calculated as follows:
(a) From the date of this Agreement until the end of the Initial Term and each subsequent term thereafter, an amount equal to fifty percent (50%) of the "Split Profits" (as defined below).
(b) "Split Profits" shall mean (x) all monies, revenues and items of value from all sources generated in connection with and/or in any way related to the Franchised Business, minus (y) the Approved Expense Items (as defined below). "Approved Expense Items" shall mean (i) those expense items calculated under Generally Accepted Accounting Principles (GAAP) and approved by Franchisor as set forth in the Confidential Operations Manual, (ii) all subsequent written budget adjustments that are approved in writing by Franchisor, and (iii) all adjustments
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to the 2025 Christian Brothers Automotive Franchise Disclosure Document, the brand calculates royalties based on a percentage of "Split Profits." During the one-year period after the franchise opens, Christian Brothers Automotive and the franchisee will review the franchisee's financial condition every three months to determine if a royalty payment is due from the split profits. The franchisee cannot receive any distribution or bonus from split profits without prior written approval from Christian Brothers Automotive.
After this initial Split Profits Review Period, the franchisee must pay Christian Brothers Automotive a monthly royalty fee. This fee is calculated as 50% of the "Split Profits," which are defined as all revenues generated by the franchised business minus approved expense items. These approved expense items are those calculated under Generally Accepted Accounting Principles (GAAP) and approved by Christian Brothers Automotive, as detailed in the Confidential Operations Manual, including any subsequent written budget adjustments approved by Christian Brothers Automotive.
This royalty structure, based on a share of profits rather than gross revenue, may align the franchisor's interests more closely with the franchisee's profitability. However, franchisees should carefully review the definition of "Approved Expense Items" in the Confidential Operations Manual to understand which expenses are deductible before calculating the royalty. Franchisees should also be aware that Christian Brothers Automotive has the right to approve or disapprove of any distribution or bonus from split profits during the Split Profits Review Period.