For the Corner Bakery Cafe franchise, how are the 5% royalty fees earned?

According to Corner Bakery Cafe's 2025 Franchise Disclosure Document, the franchise agreement mandates a monthly royalty fee of 5% of the franchise location's gross sales. This is the standard royalty fee, unless Corner Bakery Cafe and the franchisee agree upon a different amount. In return for this royalty, Corner Bakery Cafe provides ongoing services to the franchisee. These services include licensing intellectual property, updating the menu, training, advising, consulting, supporting, and overseeing quality control.

The 5% royalty fees are recognized by Corner Bakery Cafe by applying the sales-and usage-based royalties exception. This involves estimating the sales of franchisees when the franchisee's sales are executed, net of any chargebacks. As of December 31, 2024, and 2023, Corner Bakery Cafe determined that no allowance for chargebacks was required.

For a prospective Corner Bakery Cafe franchisee, this means that 5% of their gross sales each month will be paid to the franchisor as a royalty fee. This fee is for the ongoing support and services provided by Corner Bakery Cafe. It is important to note that the royalty fee is based on gross sales, not net profit, so it must be factored into the franchisee's financial planning. The franchisee should also confirm whether there are any circumstances under which the 5% royalty fee could be adjusted.