For Degree Wellness, what costs are subtracted from Gross Revenues to calculate the Management Fee?

According to Degree Wellness's 2025 Franchise Disclosure Document, the Management Fee is calculated based on the Studio Management Business's Gross Revenues. To determine the amount subject to the Management Fee, several costs are subtracted from the Gross Revenues. These subtractions include the costs associated with the Licensed Provider's salary and fringe benefits, as approved by the Management Company. If applicable, the salaries, wages, and fringe benefits of the Studio's employees, also approved by Management Company, are deducted. Additionally, the Studio's payroll taxes and other withholding items are subtracted. Finally, any other Studio operating costs incurred by the Studio in accordance with the agreement are also deducted from Gross Revenues.

For a prospective Degree Wellness franchisee, this means the Management Fee is based on a net revenue figure after accounting for significant operating expenses. This structure could be beneficial as it aligns the Management Fee with the actual profitability of the studio, rather than just the total revenue. However, it's important to note that certain expenses, such as salaries and fringe benefits, require approval from the Management Company, which could impact the franchisee's operational flexibility.

This method of calculating the management fee is fairly common in franchising, where fees are often tied to revenue but adjusted for certain costs. Franchisees should carefully document and track all eligible expenses to ensure accurate calculation of the Management Fee. It is also important to understand what constitutes an "approved" expense and the process for obtaining that approval from the Management Company.