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Considering a Papa John’s Franchise? Don’t Overlook These 19 Important Franchise Fees

by Franchise Chatter on November 14, 2016

in Franchise Fees, Pizza Franchises

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Don't Invest in a Franchise Until You Check Out This List

Papa John's Pizza Photo by JillOW

This post was updated on June 20, 2017 to reflect information from Papa John’s 2017 FDD (Item 7).

If you are considering a Papa John’s franchise, don’t get blindsided by these 19 important franchise fees (from the initial franchise fee, to the royalty fee, to 17 other franchise fees found in Items 5 and 6 of Papa John’s 2017 FDD).

1.  Development Fee:  $5,000 deposit per restaurant to be developed

2.  Initial Franchise Fee for Non-Traditional Restaurants:  $5,000 per restaurant

  • The number of restaurants is determined by agreement between you and Papa John’s prior to the time before the Development Agreement is signed. In addition to establishing the number of restaurants to be developed in the Development Area, the Development Schedule in the Development Agreement will also specify when each of the restaurants is required to be opened.
  • Under the 2017 Development Incentive program and the Enterprise Zone Incentive, you must pay Papa John’s a deposit of $5,000 per restaurant required to be developed in the Development Area. The total development fee deposit is computed by the product of the number of restaurants to be opened multiplied by $5,000 (the “Development Fee”).
  • The entire amount of the Development Fee is due and payable in a lump sum to Papa John’s at the time the Development Agreement is signed.
  • Under the 2017 Development Incentive program and the Enterprise Zone Incentive, the Development Fee is refundable for each restaurant that opens on or before its scheduled opening date (as provided in the Development Agreement). If a restaurant does not open by the scheduled date provided in the Development Agreement, Papa John’s will retain $1,000 of the Development Fee, which then will be considered fully earned and nonrefundable.
  • The initial franchise fee for a Non-Traditional Restaurant is $5,000.
  • If the state in which your Papa John’s franchise will be operated (or a local taxing authority within the state) imposes a sales tax, use tax, or similar tax on the Development Fee or Initial Franchise Fee, Papa John’s will collect such tax from you in addition to the applicable Fee and remit the amount of the tax directly to the taxing authority. This does not include income taxes imposed on Papa John’s, for which it is solely responsible.

3.  Royalty:  5% of Net Sales of the restaurant for each period

  • Due Date:  Payable on the 10th day of each month.
  • Papa John’s will debit your bank account for Royalty due.
  • Under the Franchise Agreement, these fees may be increased by any amount, up to 6% of Net Sales, at any time. However, Papa John’s may increase the Royalty only if and to the extent that its franchise agreement then being offered to new franchisees provides for a Royalty at least as high as the increased rate.
  • The Royalty may be waived or reduced for specified periods pursuant to the 2017 Development Incentive program and the Enterprise Zone Incentive.
  • Net Sates is defined as gross revenues of the restaurant for all products and services offered (whether such sales are evidenced by cash, check, credit, charge account, or otherwise), less sales tax collected and paid to the state or other local taxing authority.
  • Occasional sales not in the ordinary course of the restaurant’s principal business, such as sale of used furniture or equipment, are not included in Net Sates for purposes of calculating the Royalty.

4.  On-Line Transaction Fee:  1.5% of Net Sales via Internet online ordering

  • Due Date:  Payable on the 20th day of each month.
  • Papa John’s will debit your bank account for On-Line Transaction Fees due.
  • Papa John’s operates systems by which customers are able to place orders on-line via the Internet, text messaging, and other emerging technologies. You will be required to participate in the on-line and technology-based ordering system.
  • This transaction fee is collected only on the amount of your Net Sales effected through the on-line and technology-based ordering system.
  • The Board of Directors of the Marketing Fund may raise or lower this fee.
  • On-line and other technology-based ordering is generally not required at Non-Traditional Restaurants.

5.  Transfer:  $4,000, or if transfer is of multiple restaurants to more than one unaffiliated transferee, $4,000 per transferee

  • Due Date:  Prior to consummation of transfer.
  • Payable when the Franchise Agreement, or a material portion of the assets of a restaurant, or any interest in you, is transferred.

6.  Renewal:  $4,000

  • Due Date:  Upon signing renewal franchise agreement.
  • If you meet all the conditions relating to renewal.

7.  Audit Expenses:  cost of audit, understatement plus interest at 12% per annum

  • Due Date:  10 days after billing.
  • Payable only if understatement is greater than 5%.

8.  Management Fee:  compensation, travel, and living expenses of the appointed manager and a reasonable per diem fee Papa John’s determines

  • Due Date:  As agreed.
  • Payable during period that Papa John’s has chosen to appoint its manager to manage the restaurant if the Principal Operator ceases management.

9.  Costs, Attorneys’ Fees, and Pre-Judgment Interest:  will vary under circumstances

  • Due Date:  As incurred.
  • Payable if incurred or suffered by Papa John’s in obtaining injunctive or other relief for the enforcement of or a failure to comply with the Franchise Agreement and other agreements.

10.  Indemnification:  will vary under circumstances

  • Due Date:  As incurred.
  • You have to reimburse Papa John’s if it is held liable for claims arising from your restaurant’s operations.

11.  Marketing Fund Contributions:  maximum – up to 3% of Net Sales unless higher amount is approved by 2/3 majority vote of Members. As of the date of the Disclosure Document, 4.25%. Non-Traditional Restaurants pay 25% of the standard rate.

  • Due Date:  Payable on the 24th day of each month.
  • Papa John’s will debit your bank account for Marketing Fund Contributions due Papa John’s Marketing Fund, Inc.

12.  Papa Card Transaction and IVR Fees:  maximum – 2% of Papa Card redemption transactions, unless Papa John’s approves a bigger rate.

  • Due Date:  Monthly.
  • Papa John’s will charge your bank account for Papa Card redemption transaction fees.

13.  Cooperative Contributions:  minimum – 2% of Net Sales; cannot exceed 7% less the then-current Marketing Fund Contribution rate without majority vote of the restaurants in the cooperative or by agreement. As of 12/25/16, the highest contribution rate was 3 1/2%. Non-Traditional Restaurants pay 25% of the co-op’s contribution rate for standard restaurants.

  • Due Date:  As designated by cooperative.
  • Papa John’s and its franchisees may form local advertising cooperatives and establish fees.
  • Papa John’s restaurants have equal voting power – one restaurant, one vote.
  • If Papa John’s controls any particular cooperative, it will not charge more than 6% of Net Sales.

14.  Local Advertising:  minimum – 8% of Net Sales, less amounts contributed to the Marketing Fund and Cooperative

  • Due Date:  Must be spent monthly.
  • You are required to spend a minimum of 8% of Net Sales of the restaurant on Marketing Fund contributions, Cooperative contributions, and local store marketing and advertising.
  • Assuming, for example, a Marketing Fund contribution rate of 4.25% and a Cooperative contribution rate of 2%, you would be required to spend a minimum of 1.75% of Net Sales (8% – 4.25% – 2% = 1.75%) on local store marketing, advertising, and promotional efforts.
  • Local advertising expenditure is generally not required of Non-Traditional Restaurants.
  • You must submit required reports documenting your expenditures as Papa John’s requests from time to time.

15.  On-Site Installation and Support Fee:  $2,000 for a standard 2-day installation, $1,000 per day for each additional day. Papa John’s may increase this fee.

  • Due Date:  At the time the order is released and sent to the restaurant.
  • Papa John’s or its agent will install and support the Designated Software on your Information System. For each additional day you elect to have an installer/trainer on-site, you must pay $750 per day.
  • These obligations may be waived, or otherwise inapplicable, for a Non-Traditional Restaurant, but all restaurants are required to have approved point-of-sale technology, including at a minimum, capability of electronic reporting of sales data.
  • Also, you may contract with a certified third party or make other suitable arrangements for installation and/or support services. However, you will be required to pay your third party vendor to provide these services and Papa John’s does not establish the fees charged by such third party providers.

16.  Software Enhancement Fee:  $140 per month. Papa John’s may increase this fee.

  • Due Date:  All franchise restaurants are invoiced monthly.
  • For software maintenance, research and development, enhancements and upgrades, and installation media, if any, that Papa John’s adopts, requires, or provides.

17.  Help Desk Service Fee:  flat fee of $70 per month, or per call fee of $80 per hour with a 1/2 hour minimum. Papa John’s may increase this fee.

  • Due Date:  Invoiced monthly.
  • The Help Desk provides Information System procedural, hardware, and system support.

18.  Required Purchases:  will vary under circumstances

  • Due Date:  Due upon receipt of merchandise or installation of equipment.
  • Papa John’s will debit your bank account for purchases from it and its affiliates.
  • The types of items required to be purchased from Papa John’s or its affiliates are the Information System and related services, Designated Software, pizza dough, and pizza sauce.
  • Those items which may be purchased from its affiliates are cheese, pizza toppings, garlic butter sauce, nacho cheese flavored sauce, equipment and small wares package, uniforms, promotional items, printed materials, financing, and certain accounting services.
  • As further described in Item 8, you are required to purchase certain food items from Papa John’s affiliate, PJ Food Service. PJ Food Service’s pricing includes unattended delivery services, which is dependent on a regularized delivery schedule and routine accessibility of the restaurant.
  • In certain locations, especially Sponsorship Non-Traditional locations, PJ Food Service is unable to achieve the economic efficiencies that are afforded by regularized delivery to traditional Papa John’s locations.
  • For example, the loading area may not be accessible by the large tractor and trailer trucks that PJ Food Service uses to service traditional restaurants. Also, the irregular schedule of events or sales volumes at a location may require special deliveries at irregular times or more or less often than the regular twice weekly deliveries provided to traditional restaurants.
  • In those cases, PJ Food Service may use a different, higher pricing schedule than the pricing schedule for traditional restaurants, due to the higher costs of servicing the location. However, if that is the case for Non-Traditional Restaurants, Papa John’s will waive or adjust the royalty in order to help offset the higher food prices charged.

19.  Training Fees:  $100 per year per restaurant

  • Due Date:  Invoiced annually.
  • You are required to participate in Papa John’s online training system, Cornerstone.

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

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