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Earnings Claims of Top Franchises Revealed

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Considering an Orangetheory Fitness Franchise? Don’t Overlook These 27 Important Franchise Fees

by Franchise Chatter on November 4, 2016

in Fitness Franchises, Franchise Fees

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If you are considering an Orangetheory Fitness franchise, don’t get blindsided by these 27 important franchise fees (from the initial franchise fee, to the royalty fee, to 25 other fees found in Items 5 and 6 of Orangetheory’s 2016 FDD).

1.  Initial Franchise Fee:  $42,500 to $49,500

  • You must pay Orangetheory an initial franchise fee equal to $49,500 for a single franchise (the “Initial Franchise Fee”), when you sign the Franchise Agreement. If this is your second or a subsequent franchise for an Orangetheory Studio, the franchisor reduces the Initial Franchise Fee to $42,500.
  • The Initial Franchise Fee is not refundable, except that Orangetheory will refund 50% of the Initial Franchise Fee if it terminates the Franchise Agreement (for your first franchise) based on your failure to satisfactorily complete the initial training program. You and your owners must sign a general release in order to receive a refund.
  • Orangetheory charges the Initial Franchise Fee uniformly to all franchisees. It has no intention, now or in the future, of reducing the Initial Franchise Fee for any prospective franchisee, although it reserves the right to do so in its sole discretion, on a case-by-case basis, or if it runs a franchise marketing promotion. However, Orangetheory has agreed with its affiliates that they may acquire franchises to own and operate franchises for discounted Initial Franchise Fees.
  • The Initial Franchise Fees paid to Orangetheory during the fiscal year ended December 31, 2015 ranged from $32,500 to $39,500.

2.  Royalty Fee:  7% of Gross Sales

  • When payable:  Weekly.
  • Orangetheory will debit your bank account for the Royalty due.
  • You are responsible for the payment of Royalties to Orangetheory even if your minimum performance levels have not been met.
  • Orangetheory requires you to meet the following minimum performance standards during the term of your Franchise Agreement:
  • Gross Sales (non-cumulative)
  • Year 1:  $250,000
  • Year 2:  $300,000
  • Year 3 and thereafter:  $350,000
  • Year 1 begins on the Actual Opening Date and ends on the first anniversary. Each subsequent year runs for the same 12-month period thereafter.
  • If you do not achieve the Performance Standards during any year, then (i) you must pay to Orangetheory the difference between the Royalties actually paid and the amount of Royalties you would have paid if you had met the Performance Standards, within 10 days of Orangetheory’s invoice; and (ii) it may either (a) terminate your exclusive rights to the Territory; (b) reduce the scope of the geographic area comprising the Territory in which you will have exclusive rights; or (c) terminate the Franchise Agreement.
  • “Gross Sales” means the total gross revenue from the provision of all products and services sold or performed in, at, from, or away from the Studio, or through or by means of the Studio’s business, whether from cash, check, credit card, debit card, barter or exchange, or other credit transactions, and irrespective of collection, and including:
  • (a) membership fees, initiation fees, enrollment fees, processing fees, paid-in-full dues, renewal fees, corporate/third-party payor fees, monthly dues, and any fees or revenue generated and derived during any presales;
  • (b) fees and charges for optional services;
  • (c) fees charged to non-members using the Studio’s services;
  • (d) revenue derived from merchandise and product sales and other Core Business Operations and any Ancillary Business Operations that you or your affiliates perform; and
  • (e) payments (for example, rent and license fees) that contractors make to you relating directly or indirectly to their performance of Ancillary Business Operations.
  • The following amounts are deducted from “Gross Sales”:
  • (i) sales taxes, use taxes, and other similar taxes added to the sales price and collected from the customer and paid to the appropriate taxing authority; and
  • (ii) any bona fide refunds and credits that are actually provided to customers.

3.  Brand Fund Contributions:  currently 1% of Gross Sales; maximum 3% of Gross Sales

  • When payable:  Monthly.
  • Upon opening your Studio, you must contribute an amount Orangetheory designates, not to exceed 3% of Gross Sales.
  • Orangetheory will debit your bank account for the Brand Fund contributions due.
  • Your monthly Brand Fund contributions will commence upon the opening of your Studio (which is considered to be the date of your VIP party, as approved by Orangetheory).
  • The Brand Fund contribution is currently 1% of Gross Sales of your Studio. Orangetheory may increase the contribution amount in the future, except that it will not exceed 3% of Gross Sales.
  • Orangetheory has the right to allocate certain of its administrative expenses for marketing activities related to the Brand Fund.

4.  Local Advertising:  minimum amount that Orangetheory designates, which will be between $2,500 to $4,000 per month

  • When payable:  As incurred, with periodic monthly reports to Orangetheory upon request.
  • You must spend the minimum amount that Orangetheory designates, which will not be less than $2,500 nor more than $4,000 per month, on local advertising for your Studio. You may spend more at your discretion.

5.  Cooperative Advertising: as determined by Cooperative

  • When payable:  As determined by Cooperative.
  • If you are part of and contribute to a local Co-op in the state in which your Studio is located, Orangetheory will credit dollar for dollar the amount you contribute to a Cooperative toward your required local advertising spend.
  • Cooperatives will be comprised of all franchised and company-owned Orangetheory Studios located in the designated geographic area covered by each Cooperative.

6.  Presale/Grand Opening Marketing:  $20,000 to $30,000, as determined by Orangetheory

  • When payable:  These expenditures commence on an as-incurred basis at least 12 weeks prior to the opening of your Studio and continue through the first 30 days of operation (or such other period as Orangtheory may prescribe in the Manuals).
  • Orangetheory prescribes (in the Manuals) the required public relations, marketing, and advertising you must undertake in connection with the opening of the Studio.
  • All advertising and marketing materials must be approved by Orangetheory.

7.  Presale/Grand Opening Coordinator (Optional):  $3,000 to $10,000

  • When payable:  Upon engagement of Orangetheory’s “Presale Coordinator” for the Presale/Grand Opening Period.
  • Orangetheory strongly recommends, especially for your initial franchise unit, that you participate in its Presales Coordinator Program, which is designed to assist you in marketing your Orangetheory Studio in the community to create brand awareness and drive traffic, leads, and membership sales during the presale/grand opening period.
  • Orangetheory is currently the only approved provider of these presale assistance and training services.
  • While not currently required, Orangetheory may require you to use this service if, in the first 4 weeks of your presales activities, you fail to achieve a minimum of 50 presale memberships.
  • The program includes 12 weeks of presales assistance, training, monitoring, and ongoing coaching, and 5 days of on-site presales activity, training, and action plan implementation.
  • The fees include a fixed cost between $2,500 and $4,900 (includes all travel costs), depending on where your Studio is located.

8.  Successor Franchise Fees:  25% of then-current Initial Franchise Fee for new franchisees

  • When payable:  Before renewal.
  • Payable when, and if, you renew your Franchise Agreement. There are other conditions to renew.

9.  Transfer/Assignment Fee:  25% of then-current Initial Franchise Fee for new franchisees

  • When payable:  Before consummation of the transfer or sale.
  • Payable when, and if, you transfer or sell your franchise. There are other conditions to transfer.

10.  Relocation Fee:  equal to Orangetheory’s costs and expenses

  • When payable:  On demand.
  • You must reimburse Orangetheory for its out-of-pocket costs and expenses promptly upon receipt of its invoice.
  • These amounts are due and payable only if you relocate your Studio, subject to Orangetheory’s approval.

11.  Interest and Late Fees:  lesser of 18% per annum or the highest rate permitted by law, plus $35 per week or portion of a week that the payment or report is overdue

  • When payable:  On demand.
  • Payable on all overdue amounts and reports.
  • Interest begins from the date of non-payment or underpayment.

12.  Audit Expenses Fee:  equal to the cost of audit, including any charges of independent accountants, travel expenses, and per diem personnel charges

  • When payable:  On demand.
  • If you understate any payment owed to Orangetheory by more than 2%, you must reimburse it for its actual costs incurred in conducting the audit, including attorneys’ fees, accountants’ fees, travel expenses, and compensation of its employees.
  • These fees will not exceed Orangetheory’s actual costs.

13.  Additional Training:  reasonable fee, currently $1,000 per person per session

  • When payable:  On demand.
  • Orangetheory provides initial training for all owners who sign the Franchise Agreement at no charge. Should space permit, it may allow you to bring up to 2 additional persons for training, normally a studio manager and your head trainer, on an abbreviated basis at no additional charge.
  • Orangetheory may charge you a fee for additional persons who attend initial training other than as mentioned above. It may also charge you for ongoing training that it conducts and for training materials that it provides.
  • You are responsible for travel and living expenses incurred during training.

14.  Refresher Training Fees:  $250 per day per person trained

  • When payable:  On demand.
  • Orangetheory periodically may require you (or your managing owner) and/or, at its option, the Studio’s studio manager to attend and complete to its satisfaction any supplemental or refresher training programs it chooses to provide.

15.  Annual Conference:  up to $1,000 per person

  • When payable:  On demand.
  • You must pay Orangetheory a registration fee, which it expects will not be more than $1,000 per person, for attending its annual conference.
  • It may require you (or your managing owner), your lead trainer, and/or your studio manager to attend each conference.
  • You will be responsible for all travel and living expenses incurred by you and your personnel for attendance at the annual conference.

16.  Annual Training Summit:  up to $500 per person

  • When payable:  On demand.
  • You must pay Orangetheory a registration fee, which it expects will not be more than $500 per person, for attending its annual training summit.
  • It may require you or your managing owner, your lead trainer, and/or your studio manager to attend each training summit.
  • You will be responsible for all travel and living expenses you and your personnel incur for attendance at the annual training summit.

17.  Site Selection Counseling and Assistance:  to be negotiated (optional)

  • When payable:  As agreed.
  • As part of the Initial Franchise Fee, Orangetheory provides you with site selection guidelines, counseling, and assistance.
  • If you request and Orangetheory agrees to provide you with assistance beyond the scope of what it then provides to new franchisees, you and Orangetheory will agree on the nature and scope of such additional assistance, including fees and costs.

18.  On-Site Evaluation Fees:  Orangetheory’s costs and expenses in connection with the on-site evaluation

  • When payable:  On demand.
  • Payable only if Orangetheory determines that on-site evaluations are or become excessive. In that case, it may require you to reimburse it for its costs and expenses in relation to each evaluation, including the cost of travel, meals, and lodging for its personnel.

19.  Insurance Premiums:  amount of unpaid premiums, plus an administrative fee

  • When payable:  On demand.
  • Payable only if you fail to maintain required insurance coverage and Orangetheory elects to obtain coverage for you.

20.  Technology-Software License Fees:  approximately $249 to $749 per month (currently $249 per month), plus a $575 MindBody™ Online setup fee

  • When payable:  As invoiced.
  • Orangetheory is a reseller of the MindBody™ web-based business management software and other software that you must use in the operation of your Studio.
  • This fee includes access to Orangetheory’s OTCONNECT Intranet (including library of documents, databases, e-learning tools and webinars, and financial reporting tools) and its mobile app and other software that it prescribes and requires from time to time for use in the operation of Studios.
  • This fee is paid one month in advance and payments will commence upon the opening of your MBO account for membership presales for your Studio.
  • Software License Fees may increase.

21.  OII Fees:  approximately $149 to $449 per month (currently $149 per month)

  • When payable:  As invoiced.
  • You must purchase the OT Beat™ System from Orangetheory’s affiliate upon opening your Studio and pay a monthly technology fee to the affiliate for the related software.
  • Technology Fees may increase and additional technology fees may be incurred from time to time.

22.  Non-Compliance Fee:  up to $1,000 per notice of violation

  • When payable:  10 days after notice of violation.
  • Orangetheory may assess a non-compliance for violations of the Franchise Agreement and/or the Manuals. It reserves all other rights and remedies.

23.  Product/Supplier Approval Costs:  reasonable cost of inspection or testing plus actual cost of laboratory fees, professional fees, and travel and living expenses of its personnel

  • When payable:  When billed.
  • Orangetheory may require you to pay it or an independent laboratory for the cost of inspection or testing if you desire to purchase or lease items to be used in the Studio from sources it has not previously approved.

24.  Management Fee:  5% of Gross Sales plus Orangetheory’s reasonable costs and expenses

  • When payable:  On demand.
  • If you are in default of the Franchise Agreement or fail to maintain the Studio in accordance with its standards, Orangetheory may send in its personnel to manage the Studio until the default is cured or you are able to meet its standards.

25.  Indemnification:  will vary under circumstances

  • When payable:  On demand.
  • You must indemnify Orangetheory when certain of your actions result in loss to it under the Agreements.

26.  Costs and Attorney’s Fees:  will vary under circumstances

  • When payable:  On demand.
  • You will reimburse Orangetheory for all costs in enforcing obligations if it prevails.

27.  Operations Manual Replacement Charge:  $250

  • When payable:  Upon request by you.

If you are looking for information on the estimated initial investment for an Orangetheory Fitness franchise, check out this post:   Franchise Costs:  Detailed Estimates of Orangetheory Fitness Franchise Costs

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