How does Crave Cookies allocate the transaction price to the performance obligations in a contract?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company derives its revenues principally from three main sources: franchise fees and royalties, service sales, and product sales.
The Company determines the amount of revenue to be recognized in the revenue stream through the application of the following five-step model:
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- Identification of the contract, or contracts with the customer;
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- Identification of the performance obligations in the contract;
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- Determination of the transaction price:
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- Allocation of the transaction price to the performance obligations in the contract; and
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- Recognition of revenue when or as the Company satisfies the performance obligations
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring distinct goods or providing services to customers.
As a franchisor, the Company's principal business is to sell franchises and continuing fees to provide managed assistance of those franchises. Franchise rights may be granted through a franchise agreement that sets out the terms of the arrangement with the franchisee. The franchise agreements require that the franchisee remit continuing royalty and marketing fees to the Company based on the monthly revenues of the franchisees. The franchise agreements also require certain, upfront franchise fees such as initial fees paid upon opening of a franchise. The Company recognizes revenue when performance obligations under the terms of contracts with its customers are satisfied, which occurs when pre-opening services are provided to a customer to enable them to direct the use and obtain the benefit of the franchise, with the remaining portion being recognized over the life of the contract.
The Company also sells products and services to customers. Sales to customers typically include products or equipment. The Company's performance obligation under these sales is to deliver products or equipment to customers and revenue is recognized at that point. The timing and amount of revenue recognized related to these revenues was not impacted by the adoption of Topic 606.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, the company uses a five-step model to determine the amount of revenue to be recognized. Step four of this model specifically addresses the allocation of the transaction price to the performance obligations within a contract.
Crave Cookies derives its revenue from three primary sources: franchise fees and royalties, service sales, and product sales. Franchise agreements dictate that franchisees must pay ongoing royalty and marketing fees based on their monthly revenues. These agreements also stipulate upfront franchise fees, such as initial fees paid when a franchise opens. Crave Cookies recognizes revenue when it fulfills its obligations under the contract. For franchise agreements, this occurs when pre-opening services are provided, enabling the franchisee to operate and benefit from the franchise. The remaining portion of the revenue is recognized over the life of the contract.
For product and service sales, Crave Cookies' obligation is to deliver the products or equipment to the customer, and revenue is recognized at that point. This means that the allocation of transaction price depends on whether the revenue is derived from franchise fees, royalties, service sales, or product sales. The timing and amount of revenue recognized related to these revenues was not impacted by the adoption of Topic 606.