What is the basis for royalty calculations for Closet Storage Concepts?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
execution and delivery of this Agreement by Franchisor. Except as herein expressly provided, said Initial Franchise Fee shall not be refunded, in whole or in part, upon any termination of this Agreement nor under any other circumstances whatsoever.
3.3 Royalty Fee.
3.3.1 Royalty Based on Gross Revenue. Franchisee agrees to pay to Franchisor in accordance with Section 3.3.3, during the term of this Agreement, 5% of all weekly Gross Revenues of the Franchised Business subject to a minimum of $125.00 per week. The Gross Revenues of all of Franchisee's locations within a single Territory are aggregated for purposes of determining the correct Royalty Fee. If
the term of this Agreement commences or ends on the day other than the first or last day of a week, respectively, the royalty for such week shall be based on Gross Revenue for the portion of the week commencing or ending with the date of commencement or termination of the term of this Agreement, as the case may be.
- 3.3.2 "Gross Revenue" Defined. For the purpose of this Agreement, above, the term "Gross Revenue" is defined as the total gross revenue derived by Franchisee from the operation of Franchisee's Closet & Storage Concepts business whether from sales for cash or credit, including sales of both products and services, and including installation charges, exclusive of all sales taxes, use taxes, Gross Revenue taxes and other similar taxes added to the sales price and collected from the customer, and less any bona fide refunds, rebates, and discounts. Royalties received by Franchisor pursuant to this Section shall not be deemed trust funds nor shall Franchisor be required to segregate such funds in any way, but they shall be deemed general funds of Franchisor for all purposes.
- 3.3.3 Manner of Payment. Franchisee shall participate in Franchisor's electronic funds transfer program under which Franchisor automatically deducts the weekly royalty and other payments owed to Franchisor under this Agreement from Franchisee's bank account. Before opening, Franchisee shall sign and give to Franchisor's bank all documents necessary to effectuate this program. Franchisee shall immediately notify Franchisor of any change in Franchisee's banking relationship, including changes in account numbers. Franchisor may require that Franchisee execute its then-current form of electronic funds transfer agreement, a copy of which is attached hereto as Exhibit 12.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, the royalty fee is calculated as 5% of all weekly Gross Revenues of the Franchised Business, with a minimum of $125.00 per week. Gross Revenues include revenue from both product and service sales, including cash or credit sales and installation charges, but exclude sales taxes, use taxes, gross revenue taxes, and any bona fide refunds, rebates, and discounts. If a franchise has multiple locations within a single territory, the Gross Revenues of all locations are combined to determine the royalty fee.
Closet Storage Concepts requires franchisees to participate in an electronic funds transfer program for royalty payments. Under this program, the franchisor automatically deducts the weekly royalty and other payments from the franchisee's bank account. Franchisees must provide the necessary banking documents before opening their business and must notify Closet Storage Concepts of any changes to their banking relationship. Closet Storage Concepts retains the right to modify the payment method.
For a prospective Closet Storage Concepts franchisee, understanding the definition of Gross Revenue is crucial, as it forms the basis for royalty payments. Accurately tracking and reporting all sales, deductions, and applicable taxes is essential for compliance. The electronic funds transfer system simplifies the payment process but requires careful management of bank account information to avoid any disruptions. Franchisees should also be aware that the royalty calculation may change if they operate multiple locations within the same territory, as the gross revenues will be aggregated.