What are the two options for calculating the monthly royalty fee for an Extreme Art Studio franchise?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
We may receive information regarding your Gross Sales through the Computer System. If we ever cease to have access to this information, and you fail to report your Gross Sales when due, we may debit your designated account for an estimated Royalty and Brand Fund Contribution (defined in Item 11) on the date it is due. We will debit your designated account one hundred ten percent (110%) of the average of the last three Royalty payments and Brand Fund Contributions that we debited. If the amounts that we debit from your designated account are less than the amounts you actually owe us (once we have determined your true and correct Gross Sales), we will debit your designated account for the balance on the day we specify. If the amounts that we debit from your designated account are greater than the amounts you actually owe us, we will credit the excess against the amounts we otherwise would debit from your designated account on the next payment due date.
Source: Item 6 — OTHER FEES (FDD pages 13–18)
What This Means (2024 FDD)
Based on the 2024 Franchise Disclosure Document, there are two ways Extreme Art Studio may determine the monthly royalty fee. The standard method involves the franchisee reporting their Gross Sales, from which the royalty is calculated. However, if Extreme Art Studio loses access to Gross Sales information via the computer system and the franchisee fails to report their Gross Sales when due, Extreme Art Studio can debit the franchisee's account for an estimated royalty payment.
In this alternative scenario, Extreme Art Studio will debit the franchisee's designated account for 110% of the average of the last three royalty payments and Brand Fund Contributions. This estimated debit ensures that Extreme Art Studio continues to receive royalty payments even if the regular reporting process is disrupted.
If the estimated debits are less than the actual amount owed, Extreme Art Studio will debit the account for the remaining balance. Conversely, if the debits exceed the actual amount owed, the excess will be credited against future payments. This reconciliation process ensures that the franchisee ultimately pays the correct royalty amount based on their Gross Sales, regardless of any temporary estimation.