For Dermani Medspa, when is the revenue recognized for the performance obligation of training franchisees?
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, revenue from franchise fees is recognized when the related performance obligations are fulfilled for franchisees. Dermani Medspa identifies three performance obligations within the franchise fee: initial franchisee training, store location assistance, and intellectual property rights.
Specifically, Dermani Medspa recognizes revenue related to the training of franchisees at the time the initial training is completed. The price allocated to this pre-opening training is determined using a cost-plus margin approach. This means that Dermani Medspa accounts for the costs associated with providing the training and adds a margin to determine the revenue recognized.
In contrast, revenue from store location assistance is recognized when the franchise agreement is signed, while revenue related to intellectual property rights is recognized ratably over the ten-year term of the franchise agreement. This difference in revenue recognition timing reflects when Dermani Medspa fulfills each of these obligations to the franchisee.