What upfront franchise fees does Crave Cookies require, such as upon opening a franchise?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
timing and amount of revenue recognized related to these revenues was not impacted by the adoption of Topic 606.
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 life, the Company recognizes the remaining unearned revenue and deferred costs into income at the time the location closes. Revenues for these upfront franchise fees are recognized on a straight-line basis, which is consistent with the franchisee's right to use and benefit from the intellectual property. Franchise fees that are collected prior to the location opening are considered contract liabilities (also known as deferred revenue) and are recognized as income when the franchise location opens.
Notes to the Financial Statements
Note 2 - Revenue from Contracts with Franchisees (continued)
During the year ended December 31, 2024, the Company recognized franchising fees of $710,776. Franchisee deposits in amount of $1,277,049 have been deferred until the revenue recognition requirements of generally accepted accounting principles have been met.
Revenues from continuing fees, including royalties, marketing fees and upfront franchise fees. The Company receives a monthly royalty fee equal to 6% and monthly marketing fee equal to 2% of the franchisees weekly gross sales due the following Tuesday. These royalty payments are considered to be variable consideration; however, the Company relies on a narrow exception to the variable consideration criteria where there is a sales-based or usage-based royalty and marketing.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, the company considers upfront franchise fees distinct from ongoing services. These upfront fees primarily cover pre-opening training and related services. Approximately 80% of the initial franchise fee is recognized by Crave Cookies upon the franchise location's opening and the completion of training.
The remaining portion of the upfront franchise fees is recognized as revenue over the expected 10-year life of the franchise agreement. If a Crave Cookies location closes before this 10-year period, the company recognizes any remaining unearned revenue and deferred costs as income at the time of closure. The revenue from these upfront fees is recognized on a straight-line basis, aligning with the franchisee's right to use and benefit from the company's intellectual property.
Franchise fees collected before the Crave Cookies location opens are treated as contract liabilities, also known as deferred revenue, and are recognized as income when the franchise location begins operations. In 2024, Crave Cookies recognized $710,776 in franchising fees, while $1,277,049 in franchisee deposits were deferred until the revenue recognition requirements were met. In addition to upfront fees, Crave Cookies receives a monthly royalty fee of 6% and a monthly marketing fee of 2% based on the franchisee's weekly gross sales, due the following Tuesday.