What revenues are excluded from 'Gross Revenue' when calculating the Fly Fitness Royalty Fee?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisee agrees to pay Franchisor, weekly throughout the Term, a royalty fee equal to seven percent (7%) of the Gross Revenue, as hereinafter defined, realized from the Franchised Business and from any other revenues received using Franchisor's methods, operations and/or trade secrets (the "Royalty Fee").
The term "Gross Revenue" includes all revenues and income from any source derived or received by Franchisee from, through, by or on account of the operation of the Franchised Business or made pursuant to the rights granted hereunder, including but not limited, any and all other revenues received using Franchisor's methods, operations and/or trade secrets whether received in cash, in services, in kind, from barter and/or exchange, on credit (whether or not payment is actually received) or otherwise.
It does not include (i) any sales tax or similar taxes collected from customers and turned over to the governmental authority imposing the tax, (ii) properly documented refunds to customers, (iii) properly documented promotional discounts or (iv) properly documented employee discounts (limited to 3% of Gross Revenue).
Gross Revenue does not include gift card purchases, at the time of purchase, but Gross Revenue does include the redemption amount of purchases made by gift card.
Source: Item 22 — CONTRACTS (FDD pages 44–45)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, the Royalty Fee is calculated as a percentage of Gross Revenue. Gross Revenue includes all income from operating the Franchised Business, whether received in cash, services, or credit. However, certain items are specifically excluded from the Gross Revenue calculation.
The following revenues are not included in Gross Revenue for the purpose of calculating the 7% Royalty Fee: (i) any sales tax or similar taxes collected from customers and turned over to the governmental authority imposing the tax, (ii) properly documented refunds to customers, (iii) properly documented promotional discounts or (iv) properly documented employee discounts (limited to 3% of Gross Revenue). Also, gift card purchases are excluded at the time of purchase, but the redemption amount of purchases made by gift card is included in Gross Revenue.
For a Fly Fitness franchisee, understanding these exclusions is crucial for accurate royalty reporting and payment. It's important to maintain proper documentation for refunds, discounts, and taxes to ensure these are correctly excluded from Gross Revenue. Additionally, the treatment of gift cards—excluding the initial purchase but including the redemption amount—needs to be carefully tracked. Franchisees should consult with Fly Fitness and their own financial advisors to ensure full compliance with these revenue reporting requirements.