What is the primary source of revenue for Corporate Cleaning Group?
Corporate_Cleaning_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company generates all revenues from contracts with franchisees, primarily as a result of the sale of franchise and ongoing royalty fees. For the years ended December 31, 2024, 2023 and 2022, approximately 75%, 75% and 65%, respectively, of the Company's revenue was from royalties received from franchisees; approximately 25%, 25% and 35%, respectively, was from the sale of franchises.
The Company's only source of revenue arises from the operation of the Corporate Cleaning Group business by the Company's franchisees. Franchise rights are granted through a franchise agreement that sets out the terms of the arrangement with the franchisee. The franchise agreement requires that the franchisee remit continuing royalty fees to the Company as a percentage of the applicable franchisee's sales in exchange for the license of the intellectual property associated with the Corporate Cleaning Group's brand (the "franchise right"). The franchise agreements also require certain upfront initial franchise fees upon opening a business and training fees.
Continuing royalty fees represent the substantial majority of the consideration the Company receives under the franchise agreements. Continuing royalty fees are billed and paid monthly and are 6% of gross revenue received from the operation of the franchised business. For franchises beginning after 2021, continuing royalty fees are 5.5% of gross revenue received from the operation of the franchised business and a continuing local marketing fee to cover advertising and marketing targeted to Franchisee's specific markets are 1.5% of gross revenue. Upfront franchise fees are typically billed and paid when a new franchise agreement becomes effective.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 51)
What This Means (2025 FDD)
According to Corporate Cleaning Group's 2025 Franchise Disclosure Document, the company's primary source of revenue is from contracts with franchisees. This revenue is mainly generated through the sale of franchises and ongoing royalty fees. For the years ending December 31, 2024, 2023, and 2022, approximately 75%, 75%, and 65% of the company's revenue came from royalties received from franchisees, respectively. The remaining portion, approximately 25%, 25%, and 35%, was derived from the sale of franchises during those same years. This indicates a consistent reliance on royalty fees as the major revenue stream, with franchise sales contributing a smaller but still significant portion.
The franchise agreement between Corporate Cleaning Group and its franchisees requires franchisees to remit continuing royalty fees, which are a percentage of the franchisee's sales. In exchange, the franchisee is granted a license to use the intellectual property associated with the Corporate Cleaning Group brand. For franchises beginning after 2021, the continuing royalty fees are 5.5% of gross revenue, along with a 1.5% local marketing fee. For franchises beginning before 2021, the continuing royalty fee is 6% of gross revenue. Upfront initial franchise fees are also collected when a new franchise agreement becomes effective.
For a prospective franchisee, this revenue structure highlights the importance of generating sales to support both their own business and the royalty payments to Corporate Cleaning Group. The shift to a lower royalty fee (5.5%) coupled with a local marketing fee (1.5%) for newer franchises suggests a strategy to support franchisees' local marketing efforts while maintaining a consistent revenue stream for the franchisor. The initial franchise fees provide immediate revenue for Corporate Cleaning Group, while the ongoing royalties ensure a long-term revenue stream tied directly to the franchisee's success. This arrangement is typical in the franchise industry, where franchisors derive income from both initial fees and the ongoing performance of their franchisees.