What is the relationship between the Applicable Royalty Rate and the Minimum Royalty for Engineering For Kids?
Engineering_For_Kids Franchise · 2025 FDDAnswer from 2025 FDD Document
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ITEM 6 OTHER FEES
| Type of Fee (note 1) | Amount | Due Date | Remarks |
|---|---|---|---|
| Royalty Fees | The greater of: (a) the Applicable Royalty Rate(s) multiplied by the Gross Sales for the Period, or (b) a Minimum Royalty, which will be $300 per month beginning in the 7th month after you sign the Franchise Agreement. See Remarks for the Applicable Royalty Rates. | Payable monthly (at this time) on or before the 5th day of each subsequent Period (note 2) | The "Applicable Royalty Rates" are (note 2): • 7% of Gross Sales between $0 to $25,000 during the Period, • 6% of Gross Sales between $25,000.01 to $50,000 during the Period, and • 5% of Gross Sales in excess of $50,000 during the Period "Gross Sales" means all of your revenue from operating your Franchised Business, but excluding taxes collected from customers and paid to taxing authority, and customer coupon sales (for which customers do not pay for complimentary or reduced price services or product) and refunds. |
| Advertising Obligations (note 3) • Brand Fund • Regional Fund • Local Advertising expenditures | Maximum: 4% of your Gross Sales, plus (if applicable) the amount that your Minimum Local Ad Spend exceeds your Local Ad Percentage Spend for the month. Currently: • Brand Fund: 2%; |
Source: Item 6 — OTHER FEES (FDD pages 10–15)
What This Means (2025 FDD)
According to Engineering For Kids's 2025 Franchise Disclosure Document, franchisees must pay royalty fees based on gross sales, but not less than a minimum amount. The royalty fee is the greater of either the Applicable Royalty Rate multiplied by the Gross Sales for the Period, or a Minimum Royalty of $300 per month, starting in the 7th month after signing the Franchise Agreement. The Applicable Royalty Rates are 7% of Gross Sales between $0 to $25,000 during the Period, 6% of Gross Sales between $25,000.01 to $50,000 during the Period, and 5% of Gross Sales in excess of $50,000 during the Period. Gross Sales includes all revenue from operating the Franchised Business, but excludes taxes collected from customers and paid to taxing authority, customer coupon sales, and refunds.
In practice, this means that an Engineering For Kids franchisee will calculate their royalty payment each month by first determining their gross sales. They will then multiply their gross sales by the applicable royalty rate based on the tiered structure. If the resulting amount is greater than $300, they will pay that amount as their royalty fee. However, if the calculation results in an amount less than $300, the franchisee must pay the minimum royalty of $300 for that month. This ensures that Engineering For Kids receives at least $300 in royalties from each franchise unit each month after the initial six-month grace period.
For a prospective Engineering For Kids franchisee, it's important to understand how the Applicable Royalty Rate and Minimum Royalty interact, especially when projecting revenue and expenses. In months with lower sales, the minimum royalty could represent a significant percentage of revenue, impacting profitability. Conversely, in months with higher sales, the tiered royalty rate structure could provide some relief compared to a flat royalty rate. Franchisees should also be aware that to qualify for the reduced Applicable Royalty Rates (e.g., those less than 7%), they must be in compliance with their Royalty and Brand Fund Contribution requirements.