How is the remaining portion of franchise revenue recognized by Crave Cookies?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
For the franchise fees, the Company has determined that the services they provide in exchange for upfront franchise fees, which primarily relate to pre-opening training and other services, are individually distinct from the ongoing services they provide to their franchisees. As a result, these pre-opening are recognized upon the franchise opening, and completion of the related training. The pre-opening fees that are recognized upon the franchise opening are generally 80% of the initial franchise fee. The remaining portion of the upfront franchise fees are recognized as revenue over the expected life of the franchise agreement, which is generally 10 years. If a franchise location closes before this estimated 10-year
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies's 2025 Franchise Disclosure Document, the company recognizes franchise revenue over time. Specifically, when Crave Cookies provides pre-opening training and other services to franchisees, they consider these services distinct from the ongoing support. As a result, Crave Cookies recognizes approximately 80% of the initial franchise fee upon the franchise opening and completion of training.
The remaining portion, which is the other 20% of the initial franchise fee, is recognized as revenue over the expected life of the franchise agreement. Crave Cookies generally estimates the life of the franchise agreement to be 10 years. Therefore, the remaining 20% of the initial franchise fee is recognized gradually over this 10-year period.
This revenue recognition method has implications for both Crave Cookies and its franchisees. For Crave Cookies, it means that only a portion of the franchise fee is immediately recognized as revenue, while the rest is deferred and recognized over time. For franchisees, this means that Crave Cookies has a financial incentive to support them throughout the 10-year franchise term, as their revenue recognition is tied to the continued operation of the franchise. If a franchise location closes before the estimated 10-year term, the remaining unearned revenue may be impacted.