What revenues are specifically excluded from the definition of 'Net Sales' for a Cinnabon bakery?
Cinnabon Franchise · 2025 FDDAnswer from 2025 FDD Document
"Net Sales" includes all revenues generated by a Bakery or conducted from or with respect to a Bakery, whether the sales are evidenced by cash, check, credit, charge, account, barter or exchange, but does not include (a) the initial sales or reloading of gift cards, (b) discounts, (c) the sale of food or merchandise for which refunds have been made in good faith to customers, (d) the discounted portion of employee meals, (e) sales, meals, use or excise tax imposed by a governmental authority directly on sales and collected from customers, provided that the amount for the tax is added to the selling price or absorbed therein and is actually paid by you to a governmental authority, (f) the sale of equipment used in the operation of the Bakery, or (g) tips. See Note 2 of Item 6 for a complete definition of "Net Sales." In this Item 19, we have not included sales for SRUs that are related to any of the Bakeries.
Source: Item 19 — Financial Performance Representations (FDD pages 100–104)
What This Means (2025 FDD)
According to Cinnabon's 2025 Franchise Disclosure Document, "Net Sales" for a Cinnabon bakery includes all revenues generated by the bakery, regardless of the form of payment (cash, check, credit, etc.). However, certain items are specifically excluded from this definition. Understanding what constitutes "Net Sales" is crucial because royalties and other fees payable to Cinnabon are typically calculated as a percentage of this figure.
Specifically, the following revenue streams are excluded from the calculation of Net Sales: (a) the initial sales or reloading of gift cards, (b) discounts, (c) the sale of food or merchandise for which refunds have been made in good faith to customers, (d) the discounted portion of employee meals, (e) sales, meals, use or excise tax imposed by a governmental authority directly on sales and collected from customers, provided that the amount for the tax is added to the selling price or absorbed therein and is actually paid by you to a governmental authority, (f) the sale of equipment used in the operation of the Bakery, or (g) tips.
These exclusions are fairly standard in the franchise industry. Excluding taxes collected on behalf of the government ensures that franchisees are not paying royalties on money that is simply being passed through. Similarly, excluding refunds and employee meal discounts aligns Net Sales more closely with actual revenue earned. The exclusion of initial gift card sales is also typical, as revenue is recognized when the gift card is redeemed, not when it is initially sold.
Prospective Cinnabon franchisees should carefully review this definition of "Net Sales" and ensure they understand how it impacts their royalty obligations and financial reporting. It is also important to note that the Item 19 financial performance representations do not include sales for SRUs (presumably smaller retail units) related to any of the bakeries. Consulting with a financial advisor to fully understand these implications is highly recommended.