How are the ongoing royalty fees calculated for a Fly Fitness franchise?

According to Fly Fitness's 2024 Franchise Disclosure Document, the ongoing royalty fees are calculated as a percentage of the franchisee's unit sales. Specifically, the royalty fee is typically 7% of weekly gross sales. Fly Fitness recognizes these fees as revenue during the period in which the franchisees earn the sales. In return for these royalty fees, Fly Fitness provides support and assistance to its franchise owners and operators, including marketing assistance from the company's personnel.

For a prospective Fly Fitness franchisee, this means that 7% of their weekly gross sales will be paid to Fly Fitness as a royalty. This ongoing fee is a significant factor in the franchisee's operating costs and profitability. It is important for franchisees to factor this percentage into their financial projections and business plans.

The FDD also mentions that the majority of Fly Fitness's trade accounts receivable result from royalty and franchise fees due from franchisees. This indicates the importance of these fees to Fly Fitness's revenue stream. Fly Fitness assesses the collectability of these receivables based on factors such as the company's previous loss history, the franchisee's current ability to pay, and the overall economic and industry conditions. This assessment helps Fly Fitness determine whether an allowance for doubtful accounts is required, but currently, they consider all trade accounts receivable to be fully collectible.