Considering a Firehouse Subs Franchise? Don’t Overlook These 22 Important Franchise Fees

Updated June 12, 2018.

If you are considering a Firehouse Subs franchise, don’t get blindsided by these 22 important franchise fees (from the initial franchise fee, to the royalty fee, to 20 other fees found in Items 5 and 6 of Firehouse Subs’ 2018 FDD).

• All fees are imposed by and payable to Firehouse Subs except the local Co-Op and System Fund fees.

• All fees are uniformly imposed and are non-refundable, except as provided below.

• Firehouse Subs may require that you pay any or all recurring or periodic fees by electronic transfer.

1.  Application Deposit:  $2,500

• Firehouse Subs requires prospective franchisees to pay it a deposit of $2,500 (the “Deposit”). The Deposit is not refundable, but it will be applied to the initial franchise fee.

• Firehouse Subs holds and applies the Deposit in accordance with its Application and Deposit Agreement (the “Deposit Agreement”).

• You must pay the Deposit when you sign the Deposit Agreement.

• Firehouse Subs carefully evaluates all prospective franchise owners and the markets in which they want to operate. As part of this evaluation, you must work at least 50 hours in a Firehouse Subs Restaurant without compensation.

• This work does not constitute training of any type. The Deposit helps ensure that applicants are serious before Firehouse Subs undertakes those evaluation efforts.

2.  Initial Franchise Fee:  $20,000, less the $2,500 deposit

• Your initial franchise fee is $20,000. You must pay the initial franchise fee in a lump sum (less the Deposit) when you sign the Franchise Agreement.

• In consideration for this initial franchise fee, Firehouse Subs grants you a franchise to operate a Restaurant in an exclusive Territory and provide you with initial training.

• If you do not satisfactorily complete training, Firehouse Subs will terminate the Franchise Agreement.

• The initial franchise fee is fully earned and non-refundable. Firehouse Subs uses the fee to provide training and other services to its franchisees.

3.  Mural:  $2,800 to $4,700

• Every Firehouse Subs Restaurant displays a mural that Firehouse Subs commissions for that Restaurant.

• Although Firehouse Subs owns all copyrights to the artwork, you must purchase the mural either from Firehouse Subs or the artist it commissions to paint it.

• The mural’s cost ranges from $2,800 to $4,700 and is payable when ordered. It is not refundable.

4.  Management Information System Fee:  $1,200

• Due Date:  Payable on the 1st day of each year even if the Restaurant has not yet opened.

• You must pay Firehouse Subs an annual Management Information System Fee (the “MIS System Fee”) of $1,200 for use of its mandated management information system (“MIS System”).

• The MIS System Fee is due annually even if the Restaurant has not yet opened.

• Upon signing your Agreement, you must pay Firehouse Subs a proportionate share of the MIS System Fee to cover the period from the date of the Agreement through December 31 of that year.

• For example, if the Agreement Effective Date is August 1, then you must immediately pay Firehouse Subs $500 to cover the period August 1 through December 31.

• The MIS System Fee is not refundable.

• Firehouse Subs may require you to pay this MIS System Fee by electronic transfer.

5.  Area Development Program:  ½ of the initial franchise fee multiplied by the number of Restaurants scheduled to be developed

• Firehouse Subs charges a Development Fee for you to obtain the exclusive right to open multiple Restaurants in a pre-determined area in a specific amount of time under the Development Agreement.

• The amount paid is equal to ½ of the initial franchise fee times the number of Restaurants scheduled to be developed.

• During 2017, the Development Fees ranged from $0 to $50,000.

• You must pay the Development Fee in a lump sum when you sign the Development Agreement.

• The Development Fee is fully earned and non-refundable.

• As an accommodation for payment of the Development Fee, the initial franchise fee for each Restaurant to be developed is reduced to ½ of the then-current initial franchise fee and is payable each time you sign a Franchise Agreement for a Restaurant to be developed under the Development Agreement.

6.  Royalty:  6% of Gross Sales, reduced to 3% of Gross Sales during the first 2 years of operation for each Incentive Restaurant you open

• Due Date:  Payable the 3rd day of each Accounting Period.

• “Gross Sales” are defined as the total actual gross charges for all products (food and non-food) and services sold to customers of the Restaurant for cash or credit, whether these sales are made at or from the Restaurant premises, or any other location. However, any amounts that you collect and transmit to state or local authorities as sales, use, or other similar taxes are excluded from the definition of Gross Sales.

• “Accounting Period” is that period Firehouse Subs designates in the Manual (currently a 7-day accounting period for Royalty and Marketing calculations that runs from Monday through Sunday and a 4, 4, 5-week accounting system for financial statement purposes).

• Under the Growth Program, the Royalty for the Incentive Restaurants is reduced to 3% of Gross Sales for the first 2 years of its operations, and the Royalty for Restaurants already open and operating is reduced to 4% of Gross Sales for a 2-year period if the Area Developer commits to open up to 5 additional Restaurants in the NE territory, or 3 additional Restaurants in the MW territory, to those previously committed.

• Firehouse Subs may require you to pay the Royalties by electronic transfer.

7.  System Fund:  not to exceed 1% of Gross Sales per Accounting Period; currently 1%

• Due Date:  Payable the 3rd day of each Accounting Period.

• Paid to the System Fund that Firehouse Subs has established for the creation and development of marketing, advertising, and related programs and materials on a system-wide basis. However a designated marketing area (“DMA”) may opt out of the 4% with a simple majority vote.

8.  Local Advertising:  4% of Gross Sales

• Due Date:  Payable the 3rd day of each Accounting Period.

• Payments to the marketing Co-Op established in your market count toward this expenditure.

• The board of directors of the Co-Op voted to set the contribution at 4% of Gross Sales beginning the first Accounting Period in fiscal 2018, which began January 1, 2018.

9.  Additional Training:  $50 per person, per day

• Due Date:  Before training begins.

• Firehouse Subs trains you and 1 other person (or 2 of your owners) free. If space is available, it will also train up to 3 additional people at no charge.

• Additional training is provided if necessary. There is no established schedule or frequency for additional training. It is provided on an as-needed basis.

10.  Refresher Training:  $100 per person, per day

• Due Date:  30 days after billing.

• Payable if you want to send additional Managers through the full training program.

11.  Transfer:  ½ of Firehouse Subs’ then-current initial franchise fee; $1,500 if transfer is among your owners

• Due Date:  Prior to consummation of transfer.

• Payable when the Franchise Agreement or a controlling interest in you is transferred.

12.  Renewal:  ¼ of Firehouse Subs’ then-current initial franchise fee

• Due Date:  At the time you elect to acquire a successor franchise.

• You may elect to acquire a successor franchise during the 9th year of the Term, but no later than 180 days before expiration.

13.  MIS Fees:  to be determined; not currently charged

• Due Date:  As incurred.

• Firehouse Subs may charge a reasonable fee for modifications and enhancements made to any proprietary software it licenses to you or other Computer System maintenance and support services it furnishes.

14.  Audit:  cost of inspection or audit, plus travel

• Due Date:  15 days after billing.

• Payable only if you fail to furnish reports, supporting records, or other required information, or if sales are underreported by 2% or more.

15.  Interest:  lesser of 18% per month or highest contract rate of interest allowed by law

• Due Date:  15 days after billing.

• Payable on all overdue amounts.

• The maximum interest rate in California is 10% per annum.

16.  Late Payment Penalties:  $250

• Due Date:  Due on payment of late amount.

• Payable on all late payments, late reports, and dishonored checks, including interest.

17.  Manual:  $100

• Due Date:  At time of purchase.

• Cost of replacement copy. (Note: your copy of the Manual is only on loan to you.)

18.  Management Fee:  $1,500 per week

• Due Date:  As agreed.

• Payable during period that Firehouse Subs’ appointed manager manages the Restaurant upon your death or disability.

19.  Costs and Attorneys’ Fees:  will vary under circumstances

• Due Date:  As incurred.

• Payable upon your failure to comply with the Franchise Agreement.

20.  Indemnification:  will vary under circumstances

• Due Date:  As incurred.

• You have to reimburse Firehouse Subs if it is held liable for claims arising from your Restaurant’s operations.

21.  Testing:  $250 per day, plus laboratory fees, professional fees, personnel travel and living expenses, and other 3rd party fees Firehouse Subs incurs

• Due Date:  At time of request.

• This covers the costs of testing new products or inspecting new suppliers you propose.

22.  Relocation Expenses:  costs of relocation

• Due Date:  15 days after billing.

• This covers the cost Firehouse Subs incurs if you want to relocate the Restaurant.

If you are looking for information on the estimated initial investment for a Firehouse Subs franchise, check out this post:   Franchise Costs:  Detailed Estimates of Firehouse Subs Franchise Costs