Does Cinch I.T. or its affiliates profit from required purchases?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
e vendor of all client support through its Helpdesk services.
We and/or our affiliate earn revenue on your purchase of products and services. As of December 2023, our affiliate Cinch HD LLC earned $5,072,783 from required franchisee leases and purchases, which represented 100% of its revenue.
Except as described above, currently you are not required to purchase any other products or services from us or our affiliates. However, we reserve the right to designate ourselves and/or any of our affiliates as an approved supplier for any products and services, and we may also designate ourselves or an affiliate as the sole supplier of one or more items, in which case you would have to buy those items from us or our affiliate at our or their then-current price.
Purchases according to Our System Standards
You must operate the Franchised Business according to our mandatory System Standards which include specifications, operating procedures, and rules that we periodically prescribe for the development and operation of CINCH I.T. Franchised Businesses. System Standards may regulate, among other things, the types, models and brands of required equipment, hardware, software, inventory and supplies to be used in operating the Franchised Business; required or authorized products and product categories; and designated or approved suppliers of such items (which may be limited to or include us or our affiliates). We do not make any express or implied warranties with respect to any products or goods we recommend for your use. Our System Standards may impose minimum requirements for quality, cost, performance, warranty, delivery capabilities, financing terms, and ability to service our Franchise System as a whole. We will notify you in our Operations Manual or other communications of System Standards and/or names of approved suppliers.
Source: Item 8 — RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES (FDD pages 22–26)
What This Means (2024 FDD)
According to Cinch I.T.'s 2024 Franchise Disclosure Document, Cinch I.T. and its affiliates do profit from required franchisee purchases. The FDD states that Cinch I.T. and/or its affiliate earn revenue on franchisee purchases of products and services. As of December 2023, Cinch I.T.'s affiliate, Cinch HD LLC, earned $5,072,783 from required franchisee leases and purchases, representing 100% of its revenue. Franchisees are required to purchase proprietary Cinch I.T. products and services, trademarked and branded products, the Marketing Starter Package, and other marketing and promotional materials from Cinch I.T. or its affiliates. Except for specific instances detailed in the Operations Manual, franchisees are required to purchase all technology, software, and hardware for their use and client resale directly from Cinch I.T. or its affiliates. Cinch HD is the exclusive vendor of all client support through its Helpdesk services.
Cinch I.T. estimates that approximately 25% to 100% of a franchisee's expenditures for leases and purchases in establishing their Cinch I.T. Franchised Business will be for goods and services that must be purchased either from Cinch I.T., its affiliate, or a designated supplier, or in accordance with their standards and specifications. On an ongoing basis, Cinch I.T. estimates that approximately 90% to 100% of a franchisee's expenditures will be for goods and services that must be purchased from either Cinch I.T., its affiliate, a designated supplier, or in accordance with their standards and specifications.
In addition to direct revenue from sales, Cinch I.T. and its affiliates may also receive other benefits such as rebates, discounts, and allowances from authorized or designated suppliers based upon their dealings with franchisees. For example, in the most recent fiscal year ending December 31, 2023, Cinch HD LLC received a rebate of $59,565 from a referral partner that franchisees are not required to purchase from. Cinch I.T. is permitted to use these monies without restriction for any purpose they deem appropriate or necessary.
This arrangement is common in franchising, where franchisors often derive income from required purchases as a way to ensure quality control and system standardization. However, it is important for prospective franchisees to carefully evaluate the costs of these required purchases and compare them to market prices to ensure they are receiving fair value. Franchisees should also inquire about the criteria Cinch I.T. uses for selecting and approving suppliers, as well as the potential for negotiating better pricing or terms.