Considering a Club Pilates Franchise? Don’t Overlook These 22 Important Franchise Fees

If you are considering a Club Pilates 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 Club Pilates’s 2016 FDD).

• All fees are imposed by and are payable to Club Pilates, unless otherwise noted. No other fees or payments are to be paid to Club Pilates, nor does it impose or collect any other fees or payments for any third party.

• Any fees paid to Club Pilates are nonrefundable unless otherwise noted. Fees payable to third parties may be refundable based on your individual arrangements.

1.  Initial Franchise Fee:  $49,500

• You must pay to Club Pilates a lump sum initial franchise fee of $49,500 (the “Initial Franchise Fee”) to establish a single Studio under a Franchise Agreement (whether a start-up or conversion). The Initial Franchise Fee is due upon the signing of the Franchise Agreement.

• The Initial Franchise Fee shall be fully earned by Club Pilates upon payment and is not refundable, in whole or in part, under any circumstances.

• Except as disclosed here, Club Pilates uniformly imposes the Initial Franchise Fee on all parties that are purchasing a single Franchised Business.

2.  Initial FFE Package:  $68,000

• You must purchase an initial package of furniture, fixtures, and equipment that is designed to provide you with the majority of these items that you will need in connection with outfitting, equipping, and otherwise building out your Studio.

• As of the Issue Date of the 2016 Disclosure Document, the Initial FFE Package costs approximately $68,000 and contains (a) 13 Pilates reformers and various related equipment/supplies for use in connection with the provision of the Approved Services, (b) a Studio fixture package comprised of a desk, displays and display rack, storage cubbies, pedestals, and 1 Barre package, and (c) certain other equipment used in connection with the Studio (e.g., Pilates mini-balls, massage balls, foam rollers, and yoga blocks).

• Currently, you must purchase the Initial FFE Package from Club Pilates but it reserves to designate another approved supplier in its sole discretion. You must purchase the Initial FFE Package prior to opening your Club Pilates Studio and the Initial FFE Package is nonrefundable under any circumstances.

3.  Proprietary Initial Inventory Kit:  $3,000

• Prior to opening your Club Pilates Studio, you must purchase opening inventory from Club Pilates in the amount of $3,000 (“Proprietary Initial Inventory Kit”), which includes Club Pilates apparel, including t-shirts, yoga pants, toe sox and jewelry, essential oils, and related accessories.

• The amount paid for the Proprietary Inventory Kit is nonrefundable under any circumstances.

4.  Development Agreement:  depends on the number of Franchised Businesses Club Pilates grants you the right to open within the Development Area

• If Club Pilates grants you the right to open 3 or more Franchised Businesses under a Development Agreement, you must pay Club Pilates a one time Development Fee upon executing your Development Agreement.

• Your Development Fee will depend on the number of Franchised Businesses Club Pilates grants you the right to open within the Development Area and is calculated as follows: (i) $125,000 for the right to open 3 Franchised Businesses, plus an additional $40,000 for the right to open each additional Franchised Business (up to a total of 5); (ii) $35,000 per Franchised Business if you agree to open and operate between 6 and 9 Franchised Businesses; and (iii) $30,000 per Franchised Business if you agree to open and operate 10 or more Franchised Businesses.

• You will be required to enter into Club Pilates’s then-current form of Franchise Agreement for each Franchised Business you wish to open under your Development Agreement, but you will not be required to pay any additional Initial Franchise Fee at the time you execute each of these Franchise Agreements.

• If you enter into a Development Agreement, you must execute Club Pilates’s current form of Franchise Agreement for the first Club Pilates Studio the franchisor grants you the right to open within your Development Area concurrently with the Development Agreement.

• Your Development Fee will be deemed fully earned upon payment, and is not refundable under any circumstances. The Development Fee described above is calculated and applied uniformly to all Club Pilates franchisees.

5.  Royalty:  6% of Gross Sales

• Due Date:  Payable weekly based on the Gross Sales of your Franchised Business during the preceding business week.

• You will be required to start paying your Royalty once your Franchised Business begins collecting revenue from operations.

• Club Pilates reserves the right to collect your Royalty on a different interval (for example, monthly).

• The term “Gross Sales” means the total revenues you derive, directly or indirectly, from all business conducted upon, from, or in connection with the Studio, less sales taxes or similar taxes imposed by governmental authorities.

• You must participate in Club Pilates’s then-current electronic funds transfer and reporting program(s). All fees owed and any other amounts designated by Club Pilates must be received or credited to its account by pre-authorized bank debit by 5:00 p.m. on or before the applicable due date.

• Your franchised business may be located in a jurisdiction whose taxing authority will subject Club Pilates to tax assessments on payments you submit to it for the Royalty Fee and Marketing Fund contributions. Under such circumstances, you will be required to adjust, or “gross up” your payment to Club Pilates to account for these taxes.

6.  Marketing Fund:  currently, 2% of Gross Sales

• Due Date:  Payable weekly at the same time and in the same manner as the Royalty.

• Your Marketing Fund Contributions will begin when the Studio begins collecting revenue from operations.

• Club Pilates has established a national advertising and marketing fund (the “Marketing Fund”) and you will be required to make a weekly contribution towards such fund (“Marketing Fund Contribution”) beginning on the date your Studio begins collecting revenue from business operations.

• The Marketing Fund may be used for (among other things) product development; signage; creation, production, and distribution of marketing, advertising, public relations, and other materials in any medium, including the internet; social media; administration expenses; brand/image campaigns; media; national, regional, and other marketing programs; activities to promote current and/or future Studios and the Club Pilates brand; agency and consulting services; research; and any expenses approved by Club Pilates and associated with your Studio.

• Club Pilates will have sole discretion over all matters relating to the Marketing Fund. You must pay for your own local advertising.

7.  Orientation Program:  costs and expenses (if you or your instructor decide to attend the Orientation Program as part of Club Pilates’s Initial Training Program)

• Due Date:  As incurred.

• Each instructor that provides Approved Services from your Franchised Business must (a) be a Certified Pilates Instructor, and (b) complete Club Pilates’s Orientation Program.

• Your initial instructor(s) may attend Club Pilates’s Orientation Program at the same time they attend the rest of Club Pilates’s Initial Training Program (and Club Pilates will not charge such attendees any training fee or tuition provided they attend at the same time).

• If you have a Certified Pilates Instructor that needs (or requests) the Orientation Program after you have completed the Initial Training Program, then these instructors may also have the ability to participate in and complete Club Pilates’s Orientation Program remotely via webinar/video instruction, but they will be required to pass the Orientation Program test before providing any instruction at your Studio.

• Once a Certified Pilates Instructor working at your Studio completes the Orientation Program, that individual may assist in the provision of the Orientation Program (and related test) to other instructors at your Studio.

8.  Teacher Training Program Fee:  $2,000 per person

• Due Date:  Prior to training.

• This fee is only payable to Club Pilates in connection with each individual that is not a Certified Pilates Instructor, but wishes to obtain instruction necessary to (a) comply with the Certified Pilates Requirements, and (b) complete Club Pilates’s Orientation Program.

• If an individual wishes to attend the Teacher Training Program at your Studio, then they will pay a single fee to Club Pilates’s approved third-party provider of $4,750, with (a) $2,000 going to Club Pilates for certain materials that it provides in connection with this training (including the “Webinar Training” described in Item 11 of the 2016 FDD), and (b) the balance of $2,750 going to your Franchised Business (or the appropriate Studio that will be providing the in-person instruction).

• In order to provide the Teacher Training Program at your Studio, such training will need to be provided by an instructor that (a) is a Certified Pilates Instructor that has completed Club Pilates’s Orientation Program, and (b) is otherwise approved by Club Pilates as a “Master Instructor.” Please note that Club Pilates’s then-current criteria and conditions for a Certified Pilates Instructor that has completed the Orientation Program to also become a Master Instructor will be set forth in Club Pilates’s Operations Manual.

• If you are not able to provide the Teacher Training Program, then Club Pilates will advise you of the Studio closest to your Franchised Business that can provide such instruction to interested clientele.

9.  Ongoing/Refresher Training:  then-current training fee, which is currently $500 per day per trainer

• Due Date:  Prior to training.

• This fee is paid in connection with additional training/instruction that Club Pilates may provide on an ongoing basis in connection with the overall operation and development of your Studio.

• Club Pilates will only charge this fee in connection with training that (a) you request Club Pilates provide, or (b) Club Pilates is required to provide on-site at your Franchised Business.

• Club Pilates will not charge this fee in connection with training that it requires you to attend at its corporate headquarters or other training facility it designates.

• Club Pilates will not charge any training fee in connection with minor, day-to-day assistance that it provides remotely over the phone or via email, subject to its availability.

• In addition to Club Pilates’s then-current training fee, you will always be responsible for the costs and expenses that are incurred in connection with you and your personnel attending training.

10.  Renewal Fee:  $10,000

• Due Date:  At time of renewal.

• You must renovate and reimage the Studio at your expense at the time of Renewal to conform to Club Pilates’s then-current standards and image.

11.  Transfer Fee Under Franchise Agreement:  $10,000

• Due Date:  Before the transfer.

• Payable when you sell the Studio.

• No charge if the Studio is transferred to a corporation or other entity that you control.

12.  Assignment Fee Under Development Agreement:  $10,000

• Due Date:  On submitting application for consent to assignment.

• Payable when you want to sell/transfer the rights under your Development Agreement.

13.  Insurance Policies:  Amount of unpaid premium. Club Pilates’s estimate for 3 mos. of the minimum required insurance is $300 to $900.

• Due Date:  Must have the policies within 60 calendar days after signing the Franchise Agreement, but no later than the time that you acquire an interest in the real property from which you will operate the Studio.

• Payable only if you fail to maintain required insurance coverage and Club Pilates elects to obtain coverage for you.

• The minimum limits for coverage under many policies will vary depending on several factors, including the size of your Studio, and whether you offer classes.

14.  Audit Fees:  $500 to $2,500

• Due Date:  Within 15 calendar days after receipt of audit report.

• Payable only if audit shows an understatement.

• In the event that an audit discloses an understatement of Gross Sales or other discrepancy, in addition to the cost of the audit, you will be required to pay the marketing due on the amount of such understatement, plus late fees and interest.

15.  Late Fees:  the greater of the highest applicable legal rate for open account business credit, or 1.5% per month

• Due Date:  Upon demand.

• Applies to all amounts not paid when due, until paid in full. Club Pilates may also require you to pay an administrative fee of $50 for each late payment or late report.

16.  Penalty Fee:  then-current fee charged by Club Pilates; currently, $100 for each day of non-compliance

• Payable:  Upon demand.

• Payable only in the event you fail to comply with your material obligations under your Franchise Agreement by (a) permitting any instructor at your Studio to provide Pilates instruction or other Approved Services before they complete the Orientation Program, or (b) offering or selling any unauthorized products or services at your Studio.

• The Penalty Fee will be incurred during each day of non-compliance.

17.  Cost of Enforcement or Defense:  all costs including attorneys’ fees

• Due Date:  Upon settlement or conclusion of claim or action.

• You will reimburse Club Pilates for all costs in enforcing your obligations concerning the Franchise Agreement if it prevails.

18.  Indemnification:  all costs including attorneys’ fees

• Due Date:  Upon settlement or conclusion of claim or action.

• You will defend suits at your own cost and hold Club Pilates harmless against suits involving damages resulting from your operation of the Studio.

19.  Alternative Supplier Approval:  $1,500 per day for personnel engaged in evaluating a supplier

• Due Date:  At time of request.

• Additionally, you must reimburse Club Pilates for any travel, accommodations, and meal expenses.

• You may request the approval of an item, product, service, or supplier. Club Pilates may require you to pre-pay any reasonable charges connected with its review and evaluation of any proposal.

20.  Business Management Software Fee:  then-current fee charged by Club Pilates’s Approved Supplier, which is currently $269

• Due Date:  Payable every 4 weeks, as agreed.

• Club Pilates will make available to you a business management software program that you will download onto your computer and use in the operation of your Studio. Currently, the approved and required software for use in the Studio is “ClubReady,” an online/web based business management program.

• You will pay the third party vendor directly for all fees associated with the use of the software.

• Club Pilates has the right to access any and all information stored in the program that pertains to the Studio through file transfer protocol or polling through the Internet, at its discretion.

21.  Regional Cooperative:  as the Cooperative determines

• Due Date:  As the Cooperative determines.

• Club Pilates may establish regional cooperatives comprised of Studios that are within a given geographical area (each, a “Cooperative”).

• If a Cooperative is established where your Studio is located, you will be required to participate in that Cooperative and contribute to that Cooperative in the amounts the Cooperative determines.

22.  Liquidated Damages:  $10,000

• Due Date:  As incurred.

• If you in any way compromise the secure access to the online version of the Manual, including, but not limited to, allowing unauthorized users access to the Manual and its confidential contents, you will be required to pay Club Pilates liquidated damages in the amount of $10,000, to compensate it for the breach and related damage to the System.

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