When does Dermani Medspa receive the initial franchise fees from a franchisee?
Dermani_Medspa Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company recognizes revenue from franchise fees during the year in which the related performance obligations are provided to franchisees. The Company has identified three performance obligations delivered as part of the franchise fee related to initial training of franchisees, store location assistance, and rights to intellectual property.
The performance obligation of training franchisees is satisfied at the time of training, and the related revenue is recognized at the time initial training is completed. The transaction price allocated to pre‐ opening training was determined using the cost plus margin approach.
The performance obligation of store location assistance is satisfied at the time a franchisee's agreement is signed and the related revenue is recognized at the time the agreement is signed. The transaction price allocated to store location assistance was determined using the cost plus margin approach.
The performance obligation of providing the right to intellectual property is simultaneously received and consumed by franchisees, and is thus recognized ratably over the course of the ten year franchise agreement. The transaction price allocated to intellectual property is determined using the residual approach.
Source: Item 23 — RECEIPTS (FDD pages 66–311)
What This Means (2025 FDD)
According to Dermani Medspa's 2025 Franchise Disclosure Document, the company recognizes revenue from franchise fees during the year in which the related performance obligations are provided to franchisees. Dermani Medspa identifies three performance obligations related to the initial franchise fee: initial training, store location assistance, and rights to intellectual property.
The revenue related to initial training is recognized when the training is completed. The revenue related to store location assistance is recognized when the franchisee's agreement is signed. The revenue related to the right to intellectual property is recognized ratably over the ten-year term of the franchise agreement.
In simpler terms, Dermani Medspa doesn't recognize the entire initial franchise fee as revenue immediately. Instead, they break it down into components. They recognize revenue when they fulfill their obligations to the franchisee. This means a portion is recognized upon completion of training, another portion upon signing the franchise agreement for store location assistance, and the remaining portion gradually over the 10-year franchise term as the franchisee utilizes Dermani Medspa's intellectual property.