How are royalties determined for a Craters & Freighters franchise?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchisee acknowledges and agrees that it is obligated to pay Royalty Fees to Franchisor, in accordance with Section 3.2 of this Agreement, on all Adjusted Gross Sales (as hereafter defined) from customers residing or operating within the Territory and any Adjacent Territory.
Franchisor reserves the right to collect the Royalty Fee more frequently (e.g., weekly) upon thirty (30) days' prior written notice to Franchisee. Non-payment of any Royalty Fees will be deemed a default under this Agreement and will provide Franchisor a basis to terminate this Agreement. "Adjusted Gross Sales" means the total of all amounts received from customers for services performed and products sold from, at or in connection with Franchisee's Franchised Business, or arising out of the operation or conduct of business by Franchisee's Franchised Business, including sales made at or away from the Premises, whether such amounts are paid by cash, credit, checks, gift certificates, coupons, services, property or other means of exchange, but excluding all federal, state or municipal sales or services taxes collected from customers and paid to the appropriate taxing authority.
- 3.3 Minimum Performance Standards. Franchisee must meet the minimum performance standards ("Minimum Performance Standards") set forth in Attachment B to this Agreement. The Minimum Performance Standards are based on population (which determination should be made based upon the latest United States Census information available for the Territory), demographic factors, economic factors, competition, market penetration, the growth rate of other Craters & Freighters franchised businesses and other relevant factors solely determined by Franchisor. Franchisee understands that meeting the annual Minimum Performance Standards does not suggest that Franchisee is sufficiently penetrating the market in its Territory or that its Franchised Business will be successful. Rather, the Minimum Performance Standards are threshold minimum amounts. In the event Franchisee does not meet the Minimum Performance Standards, Franchisor will have the right to reduce the size of, or otherwise modify, Franchisee's Territory upon providing 30 days' written notice to Franchisee.
- 3.4 Marketing Fund Contribution. Franchisee must pay to Franchisor a contribution to the Marketing Fund ("Marketing Fund Contribution") equal to one percent (1%) of the Adjusted Gross Sales generated by the Franchised Business during the previous month, payable monthly at
the same time and in the same manner as the monthly Royalty Fee. Franchisor reserves the right to increase the Marketing Fund Contribution up to two percent (2%) of the Adjusted Gross Sales generated by the Franchised Business, so long as Franchisor provides Franchisee with thirty (30) days' notice of such increase.
Additionally, all royalty reports submitted by the Franchised Business will be managed exclusively through the Proprietary Software, which is also designed to assist Franchisee in streamlining operations and complying with Franchisor's standards.
Source: Item 22 — CONTRACTS (FDD pages 49–50)
What This Means (2025 FDD)
According to the 2025 Craters & Freighters Franchise Disclosure Document, franchisees are obligated to pay royalty fees based on Adjusted Gross Sales from customers within their territory and any adjacent territory they are authorized to service. Adjusted Gross Sales include all amounts received from customers for services and products, whether paid by cash, credit, checks, or other means, but exclude sales or service taxes collected and remitted to the appropriate authorities.
Craters & Freighters retains the right to collect royalty fees more frequently, such as weekly, with a 30-day prior written notice to the franchisee. Failure to pay royalty fees constitutes a default under the Franchise Agreement and may lead to termination. Franchisees must also meet Minimum Performance Standards, which are based on factors like population, demographics, economic conditions, competition, and market penetration. Failure to meet these standards may result in a reduction or modification of the franchisee's territory after 30 days written notice.
In addition to royalty fees, Craters & Freighters franchisees must contribute to the Marketing Fund, initially set at one percent (1%) of Adjusted Gross Sales, payable monthly. Craters & Freighters reserves the right to increase this contribution up to two percent (2%) of Adjusted Gross Sales, provided they give the franchisee 30 days' notice. The Proprietary Software used by Craters & Freighters manages royalty reports, ensuring streamlined operations and compliance with the franchisor's standards.