When does the Minimum Royalty fee begin to be charged for an Extreme Art Studio Business?
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
Source: Item 22 — CONTRACTS (FDD page 49)
What This Means (2024 FDD)
According to the 2024 Extreme Art Studio Franchise Disclosure Document, franchisees are required to pay a recurring royalty fee, which is the greater of 8% of gross sales or a minimum royalty fee. The minimum royalty fee is $500 per month for each Extreme Art Studio Business.
The minimum royalty fee starts being charged 6 months after the franchisee opens their first Extreme Art Studio Business under the Franchise Agreement. For each subsequent Extreme Art Studio Business opened under a Standard Franchise, the minimum royalty fee begins immediately upon opening.
This means that for the first six months of operation, franchisees only pay the 8% of gross sales royalty if it exceeds $500. After this initial period, franchisees must pay at least $500 per month, even if 8% of their gross sales is less than that amount. This could impact the profitability of a new Extreme Art Studio Business, especially in the early months when sales may be lower. Franchisees need to factor this minimum payment into their financial projections and ensure they have sufficient capital to cover this expense, particularly during the initial ramp-up phase of the business.
The immediate application of the minimum royalty for subsequent locations under a Standard Franchise suggests that Extreme Art Studio expects these locations to generate revenue more quickly, or that the franchisee has gained enough experience to manage the financial obligations from the start.