How is the transaction price allocated to pre-opening training determined by Dermani Medspa?
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 transaction price allocated to pre-opening training is determined using a cost-plus margin approach. Dermani Medspa recognizes revenue from franchise fees during the year in which they provide the related performance obligations to franchisees. These obligations include initial training, store location assistance, and intellectual property rights.
The performance obligation related to training is satisfied when the initial training is completed, and the revenue is recognized at that time. Similarly, the performance obligation for store location assistance is met when the franchise agreement is signed, and revenue is recognized accordingly. The right to intellectual property is considered simultaneously received and consumed by franchisees, so the revenue is recognized ratably over the ten-year franchise agreement, using a residual approach to determine the transaction price.
For a prospective Dermani Medspa franchisee, this means that a portion of the initial franchise fee is specifically allocated to cover the costs of the initial training program, plus a margin for Dermani Medspa. This allocation is important for revenue recognition purposes and ensures that Dermani Medspa accurately accounts for the services they provide as part of the franchise agreement. The cost-plus margin approach suggests that Dermani Medspa factors in all direct and indirect costs associated with providing the training, and then adds a profit margin to arrive at the final allocated price.
Understanding this allocation method can help franchisees appreciate the value placed on the initial training they receive and how it contributes to the overall franchise fee. It also provides transparency into how Dermani Medspa accounts for its revenue and manages its financial obligations related to the franchise agreement.