What are the three performance obligations that Dermani Medspa delivers as part of the franchise fee?
Dermani_Medspa Franchise · 2025 FDDAnswer from 2025 FDD Document
Franchise sales comprise revenue from the sale or renewal of franchises. A fee is charged upon sale or renewal. Under this arrangement, franchisees are granted the right to operate a center using the "dermani MEDSPA®" system for an initial term of ten (10) years with the right to renew for two (2) additional consecutive successor terms of five (5) years each subject to certain conditions being met. The Company is required to provide initial training regarding the system and provide assistance in accordance to the Franchise Agreement.
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, there are three performance obligations that Dermani Medspa provides as part of the franchise fee. These obligations include initial training for franchisees, assistance with store location, and the rights to intellectual property. Dermani Medspa recognizes revenue from franchise fees during the year in which these performance obligations are fulfilled for the franchisees.
The performance obligation related to training is satisfied when the initial training is completed, and the revenue is recognized at that time. The transaction price for pre-opening training is determined using a cost-plus margin approach. This means Dermani Medspa calculates the cost of providing the training and adds a margin to determine the price.
Store location assistance is considered fulfilled when the franchisee's agreement is signed, and the revenue is recognized at that point. Similar to training, the transaction price for store location assistance is determined using the cost-plus margin approach. The right to intellectual property is considered simultaneously received and consumed by franchisees, so the revenue is recognized ratably over the ten-year term of the franchise agreement. The transaction price for intellectual property is determined using the residual approach.