What is the fee structure for Ledgers monthly royalty and advertising fees?
Ledgers Franchise · 2025 FDDAnswer from 2025 FDD Document
royalty receivables as of December 31, 2024, 2023, and 2022.
Revenue Recognition
The Company generates revenue from three primary sources: (1) franchise fees and area representative sales, (2) royalty fees generated from franchisees and (3) referral fees earned from vendors.
The Company offers an Area Representative Agreement ("ARA") for the development rights of an area and a predetermined number of territories that the ARA would be allowed to sell, with a minimum number that the ARA shall develop. The ARA fee is $10,000 per territory and is nonrecurring and nonrefundable. To license the use of the Company's brand, each franchisee enters into a franchise agreement or ARA that includes an initial license fee and monthly royalty and advertising fees based on a percentage of each franchisee's gross revenue. The Company recognizes revenue from the sale of the initial franchise and ARA licenses over time upon satisfaction of applicable performance obligations over the life of the agreement which is typically 5-10 years.
NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
Monthly franchise royalties (the greater of 14% of gross receipts or the annual minimum as outlined in the executed franchise agreement) and monthly advertising fees (3% of gross revenues) pursuant to the franchise agreements, are recognized monthly at a point in time consistent with the period in which the franchisee sales are generated.
The Company also generates revenue for referring certain vendors to its franchisees. Referral fee revenue arrangements vary by vendor and the underlying revenues are generally earned at a point in time commensurate with when the franchisee enrolls with the vendor.
The Company has elected to apply the practical expedient to expense direct costs, such as sales commissions and associated personnel costs, as incurred when the expected amortization period is one year or less.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to Ledgers' 2025 Franchise Disclosure Document, franchisees are required to pay both monthly royalty and advertising fees, which are calculated as a percentage of their gross revenue. Specifically, the monthly royalty fee is 10% of Gross Revenue. Additionally, the monthly advertising fee is 3% of gross revenues. These fees are due to Ledgers by the tenth day of each month, based on the Gross Revenue from the preceding month. Gross Revenues are defined as all revenues that the franchisee derives or receives directly or indirectly from the operation of the Franchised Business, excluding sales and use taxes.
Ledgers requires franchisees to submit a monthly Royalty Report to calculate the royalty payments owed. Franchisees must authorize automatic bank drafts for these payments. This ensures timely and consistent payment of the royalty and advertising fees.
For a prospective Ledgers franchisee, understanding these recurring fees is crucial for financial planning. The combined 13% of gross revenue allocated to royalty and advertising fees represents a significant ongoing expense that must be factored into the business's operational budget and pricing strategies. It is also important to note that Ledgers retains the right to deduct any monies owed to them from any monies they pay to the franchisee.