What deductions are allowed from Gross Sales when calculating the Cinnaholic Royalty Fee?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
- 5.2. Definition of Gross Sales. Gross Sales shall mean the amount of sales of all products and services sold in, on, about or from the Bakery, together with any other revenues derived from the operation of the Bakery, whether by Franchisee or by any other person, whether or not in accordance with the terms hereof, and whether for cash or on a charge, credit, barter or time basis, including, but not limited to, all such sales and services (i) where orders originate and/or are accepted by Franchisee in the Bakery but delivery or performance thereof is made from or at any place other than the Bakery or (ii) pursuant to telephone or other similar orders received or filled at or in the Bakery. For purposes of determining the Royalty Fee and Advertising Fee, there shall be deducted from Gross Sales: (a) the amount of refunds, allowances or discounts to customers (including coupon sales) up to 10% of the Gross Sales, provided the related sales have previously been included in Gross Sales; and (b) the amount of any excise or sales tax levied upon retail sales and paid over to the appropriate governmental authority.
Source: Item 22 — CONTRACTS (FDD pages 61–62)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, the royalty fee is 5% of the Bakery's Gross Sales. When calculating the Royalty Fee, Cinnaholic franchisees can deduct certain items from Gross Sales. These deductions include refunds, allowances, or discounts to customers, including coupon sales, up to a maximum of 10% of Gross Sales, provided that the related sales were previously included in Gross Sales. Franchisees can also deduct the amount of any excise or sales tax levied upon retail sales, as long as these taxes are paid over to the appropriate governmental authority.
These deductions directly impact the amount on which the 5% royalty is calculated, potentially lowering the royalty payments. It is common practice in franchising to allow deductions for sales tax, as the franchisee is merely collecting this on behalf of the government. The allowance for customer refunds, discounts, and coupons is also fairly standard, as it reflects actual net sales revenue.
However, the 10% cap on deductions for refunds, allowances, and discounts could be a point of consideration for prospective Cinnaholic franchisees. If a Cinnaholic location anticipates offering discounts or processing refunds exceeding this threshold, the franchisee will still have to pay royalties on the excess amount. This could affect the financial planning and profitability of the franchise, especially during promotional periods or if the location experiences a high volume of returns or customer service adjustments.