What is the 'Royalty Fee' referring to in the context of the Monicals Pizza FDD?
Monicals_Pizza Franchise · 2025 FDDAnswer from 2025 FDD Document
"Royalty Fee" has the meaning given to such term in Section 3.2;
Restaurant Sales – Substantially all restaurant sales represent retail sales to the general public through Company-owned restaurants. Such amounts are recognized as revenue at the point of sale on the cash basis at the time of the underlying sale and are presented net of sales tax and other sales-related taxes.
Royalty Fees - The Company receives royalty fees, ranging from one percent to four percent of franchisees' sales. Since ongoing franchise royalty fees are based on actual franchise restaurant sales, the fees will fluctuate and are considered variable consideration. ASC 606 requires variable consideration to be estimated. However, there is an exception to this requirement for sales-based royalties related to licenses of intellectual property. These fees are recognized as revenue when sales are generated by the franchisees and comprise the entire franchising revenue amount in the accompanying consolidated financial statements for the years ended December 31, 2024 and 2023.
Source: Item 23 — RECEIPTS (FDD pages 46–257)
What This Means (2025 FDD)
According to Monicals Pizza's 2025 Franchise Disclosure Document, the Royalty Fee is a payment that franchisees make to the company based on a percentage of their sales. The FDD states that Monicals Pizza receives royalty fees ranging from 1% to 4% of franchisees' sales. These fees are considered variable consideration and are recognized as revenue when sales are generated by the franchisees.
For a prospective Monicals Pizza franchisee, this means that a portion of their gross sales will be remitted to the company as a royalty. The exact percentage will be determined by the franchise agreement. Because the royalty is a percentage of sales, the amount paid will fluctuate with the restaurant's revenue.
This type of royalty arrangement is common in the franchise industry, where franchisors collect ongoing fees based on the franchisee's performance. It aligns the franchisor's income with the franchisee's success, incentivizing the franchisor to provide support and resources to help the franchisee grow their business. The Monicals Pizza franchisee should clarify the exact royalty percentage in their Franchise Agreement.