What is the formula for calculating 'Net Profit' for Cream franchises?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
a franchisee would be required to pay us. These amounts were not paid by the reporting corporate-owned locations.
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- Net Profit means annual Gross Profit, less Total Operating Expenses and Royalty and Brand Fund Contributions and is expressed as a dollar amount and as a percentage of Gross Profit. In the top 25% quartile, 8 Item 19 Shops (38%) had annual Net Profit that met or exceeded the average annual Net Profit and $298,015 was the median annual Net Profit. In the upper mid 25% quartile, 11 Item 19 Shops (52%) had annual Net Profit that met or exceeded the average annual Net Profit and $162,380 was the median annual Net Profit. In the lower mid 25% quartile, 13 Item 19 Shops (62%) had annual Net Profit that met or exceeded the average annual Net Profit and $72,346 was the median annual Net Profit. In the bottom 25% quartile, 12 Item 19 Shops (60%) had annual Net Profit that met or exceeded the average annual Net Profit and $(33,327) was the median annual Net Profit. Out of all Item 19 Shops, 38 (46%
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 51–57)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, Net Profit is calculated by subtracting Total Operating Expenses and Imputed Royalty and Brand Fund Contributions from the annual Gross Profit. The document specifies that Net Profit is expressed both as a dollar amount and as a percentage of Gross Profit.
For Cream franchises, understanding this formula is crucial for assessing potential profitability. Gross Profit is first determined by deducting the Cost of Goods Sold (COGS) from Net Sales. Then, Total Operating Expenses, which include costs like Direct Labor, Occupancy, Supplies, Credit Card Fees, Partnership Fees, Repairs and Maintenance, and Other Costs, are subtracted from the Gross Profit. Finally, an Imputed Royalty and Brand Fund Contribution, calculated as 7% of average annual Net Sales (based on a 5% Royalty Fee and a 2% Brand Fund Contribution), is also subtracted to arrive at the Net Profit.
It's important to note that the Item 19 Shops, which are corporate-owned, did not actually pay the Royalty and Brand Fund Contributions; these were imputed for the purpose of the financial representation. The FDD provides median Net Profit figures for different quartiles of Item 19 Shops, ranging from a median of $298,015 in the top 25% quartile to a median loss of $(33,327) in the bottom 25% quartile. The median Net Profit for all Item 19 Shops was $116,193. These figures offer prospective franchisees a benchmark, though individual results may vary.
Prospective franchisees should carefully review all components of this calculation, especially Total Operating Expenses, as these can significantly impact Net Profit. Understanding and managing these costs will be essential for achieving financial success with a Cream franchise. Additionally, franchisees should consider how their own operational efficiencies and local market conditions might influence these figures.