Is there an exception to the royalty fee for Itan franchises, and if so, who does it apply to?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
The franchise agreements also require the franchisees to pay the Company a royalty fee of 6% of sales, with the exception of franchises belonging to a related party (see note 5).
Your initial payment of royalty fees and brand fund fees shall be due on the first (1st) Wednesday following the Conversion Date and shall be calculated based on Gross Sales generated from the Conversion Date through the close of business on the Sunday immediately preceding your first royalty fee due date. For purposes of clarity, if your Conversion Date occurs on a Monday or Tuesday, your first royalty fee and brand fund fee shall be $0.
Per the franchise agreement, KHI paid no royalty fees to the Company during the year ended December 31, 2023. Total marketing fund fees from KHI for the year ended December 31, 2023 were $96,154.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, there are a couple of exceptions to the standard royalty fee. First, franchisees converting an existing business to an Itan salon may have a $0 royalty fee for a short initial period. Specifically, if the conversion date falls on a Monday or Tuesday, the first royalty fee and brand fund fee will be $0. This is intended to provide some financial relief during the initial transition.
Additionally, Itan's franchise agreements generally require franchisees to pay a royalty fee of 6% of sales. However, an exception exists for franchises belonging to a related party. The document does not elaborate on the specific relationship or conditions that qualify a franchise as belonging to a related party, but it is noted as an exception to the standard 6% royalty fee.
In 2023, KHI, which owned five franchise locations, paid no royalty fees to Itan. However, KHI did pay $96,154 in marketing fund fees during that year. It is important to note that KHI sold all five of its franchise locations to a third party at the end of 2023. A prospective franchisee should inquire with Itan about the specific criteria for related-party status and whether this exception is still applicable, as well as the details of the relationship between Itan and KHI.