Considering a Menchie’s Franchise? Don’t Overlook These 25 Important Franchise Fees

This post was updated on August 13, 2017 to reflect information from Menchie’s 2017 FDD.

If you are considering a Menchie’s franchise, don’t get blindsided by these 25 important franchise fees (from the initial franchise fee, to the royalty fee, to 23 other fees found in Items 5 and 6 of Menchie’s 2017 FDD).

You will pay all fees to Menchie’s unless otherwise noted. All fees are nonrefundable unless otherwise noted. All fees are uniformly imposed.

1.  Initial Franchise Fee:  $25,000 to $40,000

• The Initial Franchise Fee for a single Store franchise is $40,000, which will be paid in full at the time you sign the Franchise Agreement. The Initial Franchise Fee is earned upon receipt and except as noted below is nonrefundable.

• Within 30 days of the effective date of your first Franchise Agreement, you may choose to open additional Stores (a total of 3 Stores or 5 Stores, including the Store to be operated under your first Franchise Agreement), and receive the benefit of paying a reduced, per store Initial Franchise Fee (as described further below under “Development Fee”).

• If you choose to exercise this option, you will be required to pay Menchie’s the difference between the Initial Franchise Fee(s) you already paid and the balance owed for the additional Stores you agree to open, which will be calculated and paid as stated in Menchie’s then-current form of Area Development Agreement.

• You also will be required to sign an Area Development Agreement, or if you are already a party to an Area Development Agreement, an addendum to the Area Development Agreement identifying the additional Stores you agree to open.

2.  Uniforms, Merchandise, Equipment, and Supplies:  $3,000

• You will be required to purchase from Menchie’s uniforms, merchandise, equipment, and Store supplies costing approximately $3,000 to $8,000 for each Store you agree to open. This amount is earned upon receipt and is nonrefundable.

3.  Development Fee:  $96,000 to $125,000

• If you enter into an Area Development Agreement, the Initial Franchise Fee for each Store will depend on the number of Stores you agree to open. If you agree to open 3 Stores, the Initial Franchise Fee for each Store will be $32,000. If you agree to open 5 Stores, the Initial Franchise Fee for each Store will be $25,000.

• If you sign an Area Development Agreement, you must pay Menchie’s a “Development Fee” in an amount determined based upon the number of Stores you agree to develop and operate. If you agree to open 3 Stores, your Development Fee will be $96,000 ($32,000 x 3). If you agree to open 5 Stores, your Development Fee will be $125,000 ($25,000 x 5).

• The Development Fee is credited against the Initial Franchise Fee for each Store. The Development Fee is fully earned by Menchie’s upon receipt and is nonrefundable.

• Upon the signing of the Area Development Agreement, you will pay either:  (i) one-half of the total Development Fee; or (ii) the entire Development Fee.

• If you pay one-half of the total Development Fee upon the signing of the Area Development Agreement, a pro rata portion of such amount will be credited against the Initial Franchise Fee due for each Store that you agree to develop under your Area Development Agreement. The remaining balance of the Initial Franchise Fee for each Store will be due when you sign the Franchise Agreement for such Store. Under this option, you will develop and open each Store before beginning the development of your next Store.

• If you choose to pay the total Development Fee upon signing the Area Development Agreement, you also will sign a Franchise Agreement and an Addendum to Franchise Agreement for each Store you agree to open when you sign the Area Development Agreement. The Addendum to Franchise Agreement will modify the time you will have to develop and open each Store — 2 years if you agree to open 3 Stores, and 3 years if you agree to open 5 Stores.

4.   Menchie’s Development Services Fee:  $1,920

• You will pay Menchie’s a Development Services Fee in the amount of $1,920. The Development Services Fee is due when you sign the Franchise Agreement. In exchange for the Development Services Fee, Menchie’s will provide you with site selection assistance and support. The Development Services Fee is earned by Menchie’s upon receipt and is not refundable.

5.  Royalty Fee:  6% of Gross Sales

• Due Date:  Weekly.

• Weekly payment (Friday) to Menchie’s, via electronic banking.

• The amount of the Royalty Fee for any renewal term will be as provided in the Franchise Agreement executed for such renewal.

• Gross Sales means the total revenues and receipts from the sale of all products, services, and merchandise sold in your Store, whether under any of the Marks or otherwise, including any catering or delivery services, cover charges or fees in your Store or on its premises, and all revenues derived from any type of authorized vending machines. Gross Sales excludes sales taxes.

6.  Marketing Fee:  2% of Gross Sales

• Due Date:  Weekly.

• Weekly payment (Friday) to Menchie’s, via electronic banking.

• The Advertising and Marketing Fee is paid to Menchie’s for deposit in a Marketing Fund.

7.  Local Advertising Fee:  $10,000

• Due Date:  Yearly.

• Any expenses for local marketing must be paid by you directly to the vendors.

8.  Franchisee Ad Co-op Fee:  to be determined by the Co-op

• Due Date:  To be determined by the Co-op.

• Menchie’s may designate a local advertising cooperative and require you to contribute and participate in the cooperative.

• If established, you must direct your local advertising expenditure to the cooperative, which is separate from the Marketing Fee.

• Each Store, including any company or affiliate-owned Stores (except Special Sites) will be a member of the cooperative. Each Store will have one vote. If the majority of the Stores in a local marketing cooperative are company or affiliate-owned, Menchie’s will have majority voting power.

9.  Audit Fee:  cost of audit. Precise estimate is unknown as of the date of the 2016 Disclosure Document, but is estimated to range from $100 to $2,000.

• Due Date:  5 days after notice of amount due.

• You will pay Menchie’s the costs of an audit to be performed if you fail to provide monthly financial statements, which are required by the Franchise Agreement in excess of three times per calendar year, or if a random audit shows an understatement of Gross Sales in excess of 2%.

10.  Late Fee:  10% of the amount due

• Due Date:  Within 5 days of the date of Menchie’s statement for amount due.

• You will pay Menchie’s a late fee in the amount of 10% if you fail to pay the Royalty Fee, Marketing Fee, or other amounts due to it within 10 days of the due date.

• You also will be required to pay Menchie’s a late fee on any other overdue amount beginning with the date payment is due until you pay the overage.

11.  Interest on Late Payments:  the lesser of 1% per month or the maximum amount permitted by applicable law

• Due Date:  Within 5 days of date of Menchie’s statement for amount due.

• You will pay Menchie’s interest on any overdue Royalty Fees, Marketing Fees, or other amounts due to it, beginning with the date payment is due until you pay the overage.

12.  Additional Training Fee:  to be determined by Menchie’s, but not to exceed $500 per person per day

• Due Date:  Before commencement of the training program.

• You will pay Menchie’s a nonrefundable fee if you ask for special assistance, or it determines that additional training is warranted after your initial training period.

13.  Operations Manual:  $500

• Due Date:  As incurred.

• If your copy of the Operations Manual is lost, stolen, or otherwise unavailable to you, you must pay Menchie’s $500 for a replacement copy.

14.  Alternative Supplier Evaluation Fees:  various amounts to be determined by the amount of time and money necessary to evaluate the alternative supplier and/or the alternative product. Precise estimate is unknown as of the date of the 2016 Disclosure Document, but is estimated to range from $500 to $5,000. This amount will include Menchie’s costs and expenses associated with any testing, including travel and lodging expenses incurred by Menchie’s to visit a supplier’s facilities.

• Due Date:  As incurred.

• If you seek approval of a new supplier or product, Menchie’s may charge you a fee for conducting the evaluation or you may have to pay some third party to evaluate your proposed supplier or product.

15.  Renewal Fee:  10% of Menchie’s then-current franchise fee

• Due Date:  Before signing of the renewal Franchise Agreement.

• Payable to Menchie’s, if you wish to renew your Franchise Agreement.

16.  Technology Fee:  $80

• Due Date:  Monthly, beginning 30 days after you sign a lease for your Store.

• You must pay Menchie’s, via electronic transfer, a fee for its Proprietary System Software Package, which will cover its expenses associated with furnishing one user with its franchise management software, creating email accounts, email marketing, and providing technology administration and maintenance according to Menchie’s then-current guidelines and procedures, which may change from time to time.

• Menchie’s reserves the right to change the fee amount each calendar year, upon 14 days’ written notice to you.

17.  Alternative Dispute Fee:  to be determined by the American Arbitration Association

• Due Date:  At commencement of dispute resolution.

• Fee for participating in any dispute-resolution process.

18.  Transfer Fee:  50% of Menchie’s then-current franchise fee

• Due Date:  Due at time transferee signs Franchise Agreement.

• Either you or transferee must pay Menchie’s the transfer fee.

19.  Seminar and Convention Fees:  No charge for attending seminars or conventions. Fees for travel, food, and lodging will depend on distance traveled and accommodations which one chooses.

• Due Date:  As incurred.

• Fees for travel, food, and lodging to attend seminars and conventions. Paid to various vendors.

• Certain expenses may be refundable under various circumstances.

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

• Due Date:  As incurred.

• Payable to Menchie’s, to reimburse it for fees incurred by it in obtaining injunctive or legal relief for the enforcement of any item of the Franchise Agreement or for costs incurred for arbitration proceedings.

21.  Indemnification:  will vary under circumstances

• Due Date:  As incurred.

• You must reimburse Menchie’s if it is held liable for any claims arising from your business.

22.  Insurance:  will vary according to coverage and area

• Due Date:  As incurred.

• You must be fully covered in all areas of operating a business. If you do not procure and maintain the required insurance coverage, Menchie’s may, but is not required to, procure insurance coverage on your behalf and to charge the costs to you together with a reasonable fee for the expenses it incurs.

• Insurance includes all risk or all peril coverage, business interruption insurance, comprehensive general liability insurance, and other forms of insurance Menchie’s requires. You pay insurance premiums and other insurance-related payments directly to Menchie’s required third-party insurers.

• You must deliver to Menchie’s upon commencing construction of your Store, and thereafter annually or at its request, a proper certificate evidencing the existence of the required insurance coverage.

23.  Proprietary Software:  various amounts

• Due Date:  As incurred.

• If Menchie’s develops proprietary software, you must use it.

24.  Grand Opening Marketing Campaign:  $5,000

• Due Date:  As incurred.

• You must spend at least $5,000 on grand opening marketing and promotion during the first month your Store is open.

• Your grand opening marketing expenditures will count towards your first year’s Local Advertising Fee.

25.  Inspection Fee:  Menchie’s costs and expenses in conducting any subsequent pre-opening Store inspection. Menchie’s estimates that this amount will not exceed $1,000.

• Due Date:  Upon demand.

• Menchie’s will inspect your Store prior to opening. If your Store does not pass initial inspection, you will be charged for all costs and expenses Menchie’s incurs in conducting any subsequent inspections.

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