What does 'Royalty' represent in the context of Lees Famous Recipe's financial performance?

According to Lees Famous Recipe's 2025 Franchise Disclosure Document, 'Royalty' represents the total royalty fee contributions paid by franchisees under the Franchise Agreement. The document specifies that these fees were actually paid by the affiliate-owned stores reflected in the provided financial chart last year. In the 2024 adjusted income statement for affiliate-owned stores, the royalty is considered an incremental operating cost to a franchisee.

Specifically, the 2024 adjusted income statement includes adjustments to reflect the incremental operating costs to a franchisee, including royalty fees, brand cooperative advertising fund fees, local advertising expenditures, payroll processing fees, and adjustments made for insurance. The average royalty paid by affiliate-owned stores was $108,602, representing 5.0% of gross sales. The median royalty was $99,258, also representing 5.0% of gross sales.

For a prospective franchisee, understanding the royalty fee is crucial as it directly impacts their operating costs and overall profitability. The royalty is a percentage of gross sales, meaning it will fluctuate with revenue. Franchisees should factor this expense into their financial projections and business plans. It's also important to note that the provided financial performance data is based on affiliate-owned stores, and actual results may vary for franchised locations due to various factors such as location, management, and local market conditions. Therefore, a prospective franchisee should conduct their own independent investigation of costs and expenses.