What primary components constitute the franchise revenues for Craters & Freighters?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise Revenues
Franchise revenues consist primarily of royalties, advertising, technology and insurance fund contributions, and initial franchise fees. Under franchise agreements, the Company generally provides franchisees with (a) a franchise license, which includes a license to use the Company's intellectual property, advertising and promotion management, technology platforms, and insurance services, (b) pre-opening services, and (c) ongoing services. As a practical expedient (as defined in ASC 952-606-25-2 Revenue from Contracts with Customers, Recognition), the Company accounts for its pre-opening services as a distinct service from the franchise license and ongoing services in a franchise agreement. Pre-opening services include (a) assistance in the selection of a site, (b) assistance in obtaining facilities and preparing the facilities for their intended use, including related financing, architectural, and engineering services, and lease negotiations, (c) training of the franchisee's personnel or the franchisee, (d) preparation and distribution of manuals and similar material concerning operations, administration, and record keeping (e) bookkeeping, information technology, and advisory services, including setting up the franchisee's records and advising the franchisee about income, real estate, and other taxes or about regulations affecting the franchisee's business, and (f) inspection, testing, and other quality control programs. The Company records these pre-opening services fees as initial franchise fee revenue upon satisfaction of the performance obligation, typically when the franchisee begins operations. During the years ended December 31, 2024 and 2023, the Company received initial franchise fee revenue of $88,255 and $39,000, respectively.
Royalties, including franchisee contributions to advertising funds, represent sales-based royalties and are calculated as a percentage of net sales reported by franchisees and recognized over time as franchisee sales occur. These revenues are presented within "royalties" and expenses incurred to provide these services are included within "franchisee support." Regarding advertising funds, under the new revenue standard, the Company has determined it acts as a principal of the franchisee advertising transactions, thus, revenue and expense are presented gross. These revenues are presented within "franchise revenues" and expenses incurred to provide these services are included within "advertising." When revenues of an advertising program exceed the related advertising expenses, advertising costs are accrued up to the amount of reve
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to the 2025 Craters & Freighters Franchise Disclosure Document, the company's franchise revenues primarily consist of royalties, advertising, technology and insurance fund contributions, and initial franchise fees. These revenue streams are generated through franchise agreements, where Craters & Freighters provides franchisees with a franchise license that includes the use of their intellectual property, advertising and promotion management, technology platforms, and insurance services.
In addition to the ongoing revenue streams, Craters & Freighters also earns revenue from pre-opening services provided to new franchisees. These services include assistance in site selection, help with obtaining and preparing facilities, training of personnel, preparation and distribution of operational manuals, bookkeeping, IT and advisory services, and quality control programs. The revenue from these pre-opening services is recognized as initial franchise fee revenue once the franchisee begins operations. In 2024 and 2023, Craters & Freighters received $88,255 and $39,000, respectively, in initial franchise fee revenue.
Royalties, including franchisee contributions to advertising funds, are calculated as a percentage of net sales reported by franchisees and are recognized over time as franchisee sales occur. These revenues are categorized as "royalties," while the expenses incurred to provide these services are included within "franchisee support." The FDD specifies that Craters & Freighters acts as the principal in franchisee advertising transactions, presenting both the revenue and expenses gross. When advertising program revenues exceed related expenses, advertising costs are accrued up to the amount of revenues on an annual basis. This detailed breakdown of revenue recognition provides transparency into how Craters & Freighters generates income from its franchise operations.