What items are excluded from 'Gross Sales' when calculating royalties for a Lees Famous Recipe franchise?
Lees_Famous_Recipe Franchise · 2025 FDDAnswer from 2025 FDD Document
- N. "Gross Sales" means the aggregate amount of sales of all food and beverages, and other goods and services; the sale of any products or services associated with the use of the Marks, including sales from vending machines, deliveries, and catering sales, whether for cash, on credit or otherwise, made or provided at or in connection with the Restaurant, including off-premises sales and monies derived at or away from the Restaurant; insurance proceeds for lost sales covered by business interruption insurance; and agreements to pay or other consideration, whether or not payment is received at the time of sale or any such amounts prove uncollectible.
The term "Gross Sales" does not include: (1) any federal, state, municipal or other sales, value added or retailer's excise taxes paid or accrued by you; and (2) adjustments for net returns on salable goods and discounts allowed to customers on sales; or (3) discounts for meals for Restaurant employees.
Gross Sales will not be adjusted for uncollected accounts.
For purposes of the Royalty Fee described in Section 4(B) below, the sale is made at the earlier of delivery of the product or service, or receipt of payment.
We reserve the right to modify our policies and practices regarding revenue recognition, revenue reporting, and the inclusion or exclusion of certain revenue from "Gross Sales" as circumstances, business practices, and technology change.
Source: Item 22 — CONTRACTS (FDD pages 69–70)
What This Means (2025 FDD)
According to Lees Famous Recipe's 2025 Franchise Disclosure Document, the calculation of 'Gross Sales' for royalty fee purposes excludes specific items. Gross Sales generally include all sales of food, beverages, other goods and services, sales of products or services associated with the use of the Marks, including sales from vending machines, deliveries, and catering sales, whether for cash, on credit or otherwise, made or provided at or in connection with the Restaurant, including off-premises sales and monies derived at or away from the Restaurant; insurance proceeds for lost sales covered by business interruption insurance; and agreements to pay or other consideration, whether or not payment is received at the time of sale or any such amounts prove uncollectible.
However, the following are specifically excluded from the Gross Sales calculation: (1) any federal, state, municipal or other sales, value added or retailer's excise taxes paid or accrued by you; (2) adjustments for net returns on salable goods and discounts allowed to customers on sales; and (3) discounts for meals for Restaurant employees. Gross Sales will not be adjusted for uncollected accounts.
It is important to note that Lees Famous Recipe retains the right to modify its policies regarding revenue recognition and the inclusion or exclusion of certain revenue from Gross Sales as business practices and technology change. For royalty fee purposes, a sale is considered made at the earlier of the delivery of the product or service, or receipt of payment. This means a franchisee must pay royalties even if they haven't yet collected payment, as long as the product or service has been delivered.