Are sales of gift cards included in Kidokinetics' Gross Sales, and if so, when are they counted?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
"Gross Sales" means the revenues you receive from the sales of all goods, services and products sold at, from, or through the Kidokinetics Business or made pursuant to the rights granted hereunder, and all other income of every kind and nature related to the Kidokinetics Business, whether from cash, or credit, or otherwise, and regardless of collection in the case of credit, including the full redemption value of any gift card, gift certificate or coupon sold for use in the Kidokinetics Business (fees retained by or paid to third-party sellers of such gift cards, gift certificates or coupons are not excluded from this calculation), and all proceeds from any business interruption insurance. It does not include (i) any sales tax or other taxes collected from customers for, and turned over to, the governmental authority imposing the tax, (ii) properly documented refunds to customers, or (iii) properly documented employee discounts (limited to 3% of Gross Sales). Gross Sales include sales of gift cards and gift certificates at the time the franchisee receives the funds from the purchase of such gift cards and gift certificates.
Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 46–54)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, gross sales include the full redemption value of any gift card, gift certificate, or coupon sold for use in the Kidokinetics business. However, fees retained by or paid to third-party sellers of such gift cards, gift certificates, or coupons are not excluded from this calculation. Gross Sales include sales of gift cards and gift certificates at the time the franchisee receives the funds from the purchase of such gift cards and gift certificates.
This means that when a Kidokinetics franchisee sells a gift card, the revenue is counted as part of their gross sales at the time of purchase, not when the gift card is redeemed. This is a common practice in franchising, as it allows the franchisor to collect royalties on the sale of the gift card sooner.
However, it is important to note that the definition of "Gross Sales" does not include (i) any sales tax or other taxes collected from customers for, and turned over to, the governmental authority imposing the tax, (ii) properly documented refunds to customers, or (iii) properly documented employee discounts (limited to 3% of Gross Sales). A prospective franchisee should keep these exclusions in mind when calculating their gross sales and royalty payments to Kidokinetics.