What is the definition of 'Minimum Royalty' for an Extreme Art Studio franchise?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
eferred opportunity to enter into this Franchise Agreement with others, and it also offsets some of our expenses for franchisee recruitment.
3.2 ROYALTY FEE.
- 3.2.1 You agree to pay us a recurring royalty fee ("Royalty") for each calendar month (or other accounting period that we may designate from time to time). The amount of the Royalty will be equal to the greater of: (i) eight percent (8%) of your Gross Sales from all of your Extreme Art Studio Businesses for the previous calendar month (or other accounting period we designate); or (ii) $500 per month for each Extreme Art Studio Business you operate under this Franchise Agreement ("Minimum Royalty"). The Minimum Royalty shall begin being charged by us 6 months after you open your first Extreme Art Studio Business under this Franchise Agreement and immediately upon opening each subsequent Extreme Art Studio Business under a Standard Franchise (if applicable).
Source: Item 22 — CONTRACTS (FDD page 49)
What This Means (2024 FDD)
According to the 2024 Extreme Art Studio Franchise Disclosure Document, the 'Minimum Royalty' is defined as a recurring fee that franchisees must pay. Each month, Extreme Art Studio franchisees are obligated to pay a royalty fee, which is calculated as the greater of two amounts. The first is eight percent of the franchise's Gross Sales from all Extreme Art Studio Businesses for the previous month. The second is a flat rate of $500 per month for each Extreme Art Studio Business operated under the Franchise Agreement.
This means that even if a franchisee's Gross Sales are low in a particular month, they must still pay the Minimum Royalty of $500 per Extreme Art Studio Business. This Minimum Royalty requirement begins six months after the franchisee opens their first Extreme Art Studio Business. For each subsequent Extreme Art Studio Business opened under a Standard Franchise, the Minimum Royalty applies immediately upon opening.
The definition of Gross Sales includes all revenue received from operating the Franchised Business, including any modules. This encompasses all amounts received directly or indirectly, whether in cash, check, credit/debit card, barter exchange, trade credit, or other credit transactions. It also includes proceeds from any business interruption insurance. This broad definition ensures that all forms of revenue are subject to royalty calculations, with the franchisee paying either 8% of this total or the $500 minimum, whichever is higher.
For a prospective franchisee, this means that they need to be prepared to pay at least $500 per month per location in royalties, regardless of their sales volume, after the initial six-month grace period for the first location. This minimum payment can impact the profitability of the franchise, especially during slow months or the early stages of operation. It is important to factor this Minimum Royalty into financial projections and business planning to ensure the franchise can meet its financial obligations to Extreme Art Studio.