How are continuing royalties calculated for a Cicis franchise, and how are they treated in terms of revenue recognition?
Cicis Franchise · 2025 FDDAnswer from 2025 FDD Document
Continuing royalties are calculated as a percentage of franchise restaurant sales that are related entirely to our performance obligation under the franchise agreement. These royalties are considered variable consideration but, because they relate to a license of intellectual property, they are not included in the transaction price. Instead, royalty revenue is recognized as franchised restaurant sales occur.
Source: Item 20 — OUTLETS AND FRANCHISEE INFORMATION (FDD pages 58–64)
What This Means (2025 FDD)
According to Cicis's 2025 Franchise Disclosure Document, continuing royalties are calculated as a percentage of franchise restaurant sales. These royalties are directly tied to Cicis's performance obligations under the franchise agreement. This means the royalties are earned as the franchisee makes sales.
Because the royalties are linked to a license of intellectual property, they are not included in the initial transaction price. Instead, Cicis recognizes royalty revenue as franchised restaurant sales occur. This approach reflects that the value to Cicis is derived from the ongoing use of its brand and systems, rather than a fixed upfront fee.
For a prospective franchisee, this means that royalty payments will fluctuate with sales volume. The more sales a Cicis restaurant makes, the higher the royalty payment will be. This aligns the franchisor's revenue with the franchisee's success, incentivizing Cicis to provide ongoing support and resources to help franchisees grow their businesses.