Considering a Zaxby’s Franchise? Don’t Overlook These 21 Important Franchise Fees

This post was updated on November 21, 2017 to reflect information from Zaxby’s 2017 FDD.

If you are considering a Zaxby’s franchise, don’t get blindsided by these 21 important franchise fees (from the initial franchise fee, to the royalty fee, to 19 other fees found in Items 5 and 6 of Zaxby’s 2017 FDD).

• Except as otherwise noted, all amounts are nonrefundable and are uniformly imposed by and payable to Zaxby’s.

1.  Initial Franchise Fee:  $35,000

• The initial franchise fee is currently $35,000. Except as provided below, you will remit to Zaxby’s the entire initial franchise fee upon the execution of the License Agreement for the Restaurant.

• If you are unable, after what Zaxby’s deems to be a commercially reasonable effort, to locate a site for the Restaurant that it confirms meets its minimum standards and specifications, it will refund to you one-half of the initial franchise fee paid to it, provided that you and your owners enter into a mutual termination of the License Agreement, in a form acceptable to Zaxby’s, and release it from all claims.

• The other one-half of the initial franchise fee is nonrefundable and will be retained by Zaxby’s. (This refund is not available for Restaurants developed in accordance with a Development Agreement.)

• Zaxby’s has and may continue to waive the initial franchise fee for the benefit of entities owned by Zaxby’s shareholders. It may decrease the initial franchise fee periodically for new Restaurants in certain markets that it has particularly targeted for growth. Otherwise, the initial franchise fee is uniform for all franchisees. In its 2016 fiscal year, the initial franchise fees Zaxby’s collected were uniformly $35,000.

• When you fulfill your rights and obligations under the License Agreement, you will be using Zaxby’s intellectual property, which you do not own, but are licensed to use subject to the terms of the License Agreement. Because of the limitations on your use of Zaxby’s intellectual property, and the additional payments you will be required to make to operate your Restaurant, the initial franchise fee should not be construed as “buying the franchise.”

2.  Development Fee:  50% of the aggregate initial franchise fees to be paid for all Restaurants to be opened under the Development Agreement

• If you are a multi-unit developer, you have committed to develop more than one Restaurant and are granted a non-exclusive development area for this purpose. Upon signing the Development Agreement, you will remit to Zaxby’s 50% of the aggregate initial franchise fees to be paid for all Restaurants to be opened under the Development Agreement.

• You will remit the remaining 50% of the initial franchise fee for each Restaurant upon Zaxby’s confirming your site by execution of the License Agreement for that Restaurant (which must occur on or before 180 days prior to the opening date specified in the development schedule).

• For example, if you agree to develop 5 Restaurants, you will remit to Zaxby’s $87,500 upon execution of the Development Agreement (50% of $175,000). You will then remit the remainder of each initial franchise fee, or $17,500 (50% of $35,000), upon execution of each License Agreement for each Restaurant.

3.  Initial Marketing Contribution:  $5,200 to $10,000

• In addition to the initial franchise fees payable under the License Agreement and Development Agreement, you will remit between $5,200 and $10,000 to Zaxby’s at least five days prior to the opening of your Restaurant for your initial marketing plan (the “Initial Marketing Contribution”) and the funds will be utilized as provided in Item 11.

4.  Construction and Pre-Opening Operational Inspection Fee:  no less than $500 per additional inspection, after the first two inspections

• If you require more than two on-site inspections during the construction of your Restaurant, you must pay Zaxby’s a construction and pre-opening operational inspection fee equal to its actual costs and expenses, which shall be no less than $500 per additional inspection.

5.  Additional Attendee for Manager and Assistant Manager Training:  $2,500 per additional attendee for manager training and $2,000 per additional attendee for assistant manager training

• If more than four of your managers attend initial training, you must pay Zaxby’s $2,500 per additional attendee for manager training and $2,000 per additional attendee for assistant manager training.

• Except as provided above, no other fee or payment is payable to Zaxby’s prior to the opening of the business and all fees are nonrefundable, are remitted to Zaxby’s, and are deemed earned upon receipt.

6.  Royalty:  6% of Gross Sales per week

• Due Date:  Remitted weekly by ACH draft on the Tuesday following each week (Monday through Sunday) for which the royalty was due.

• “Gross Sales” means the aggregate of all monies and receipts derived from (i) all products prepared and services performed at or through the Restaurant; (ii) sales and orders made, solicited, or received at or through the Restaurant; (iii) all of the business whatsoever conducted or transacted at or through the Restaurant; (iv) all other revenue derived from the exploitation of the system and/or the marks; and (v) all insurance proceeds and/or condemnation awards for loss of sales, profits, or business, and whether such payment is in cash, by check or debit card, by exchange, or for credit (and, if for credit, regardless of collection therefor), less any sales taxes collected by you and transmitted to appropriate taxing authorities.

• Unless otherwise restricted by applicable banking laws and regulations, Zaxby’s will establish a direct debit program with your bank to allow for the ACH draft of the weekly royalty. You will be required to execute any necessary documents authorizing the ACH draft.

7.  National Marketing Contribution:  1% of Gross Sales per week (may be increased up to 1 1/2% in Zaxby’s discretion)

• Due Date:  Same as Royalty, but remitted to ZNMF.

8.  Local Co-op Marketing Contribution or Multi-DMA Advertising Contribution:  1 1/2% to 3 1/2% of Gross Sales per week (as determined by Co-op or ZMAA)

• Due Date:  Same as Royalty, but remitted to Co-op or ZMAA.

• Zaxby’s has established, and may continue to establish, advertising cooperatives in certain geographic areas (“Co-ops”). All Restaurants outside of a Co-op must participate and contribute 1 1/2% to 3 1/2% of Gross Sales each week to ZMAA.

• All Restaurants within a Co-op must participate and contribute between 1 1/2% to 3 1/2% of Gross Sales each week to the Co-op, as determined by the members of the Co-op (with each Restaurant in a Co-op, including both franchised and company or affiliate-owned Restaurants, having one vote in determining the contribution amount).

• In some areas, company or affiliate-owned Restaurants may have a majority of votes in a Co-op and, thus, have the authority to set the contribution fee, which may not exceed 3 1/2%.

9.  Accounting Services Fee:  $600 per month for bookkeeping services, payroll processing services, and point of sale operational reports, $225 per month for accounts payable services, $425 per month for bookkeeping services or payroll processing services only. Also, $15 annually per employee for Affordable Care Act reporting.

• Due Date:  On the first day of each month in advance.

• Zaxby’s subsidiary, RSS, offers optional bookkeeping services, payroll processing services, accounts payable services, and point of sale operational reports to Zaxby’s licensees.

10.  Supplier Approval:  actual cost of testing supplier

• Due Date:  Within 30 days of receipt of invoice.

• Zaxby’s reserves the right to charge this fee to you or the supplier for the inspection of a proposed supplier of goods or services to be used in connection with a Restaurant.

11.  Transfer Fee (License Agreement):  50% of then-current initial franchise fee

• Due Date:  Prior to transfer.

• All transfers must be in accordance with the terms and conditions of the License Agreement and are subject to Zaxby’s prior approval. Zaxby’s has and may continue to waive the transfer fee for transfers for the benefit of entities owned by Zaxby’s shareholders.

12.  Transfer Fee (MRDA Agreement):  $7,500

• Due Date:  Prior to transfer.

• All transfers must be in accordance with the terms and conditions of the Development Agreement and are subject to Zaxby’s prior approval. Zaxby’s has and may continue to waive the transfer fee for transfers for the benefit of entities owned by Zaxby’s shareholders.

13.  Late Fees and Interest Charge on Late Payments:  $100 per week for late Royalty payments, plus 18% per annum or highest rate allowed by law (the “Default Rate”) calculated daily for all amounts paid late; and $25 per week for late National Marketing Contribution, Co-op Marketing Contribution, Multi-DMA Advertising Contribution, and any other required advertising fee to Zaxby’s

• Due Date:  Upon demand.

14.  Audit Fee:  cost of audit

• Due Date:  Upon demand.

• Due if an audit shows an understatement of 3% or more in any month in such report, or if an audit is performed as a result of your failure to submit financial reports in a timely manner.

15.  Indemnification/Attorney Fees and Costs/Damages:  all losses and expenses incurred

• Due Date:  Upon being incurred by Zaxby’s.

• You must indemnify Zaxby’s from all losses and expenses incurred in connection with any action, suit, proceeding, claim, demand, investigation, or formal or informal inquiry (regardless of whether same is reduced to judgment) or any settlement that arises out of or is based upon any of the items listed in the sections of the License Agreement and the Development Agreement entitled “Indemnification.”

• You must also pay for Zaxby’s legal expenses (fees and actual costs) incurred in any matter related to your Restaurant and for any damages, costs, and expenses that Zaxby’s incurs enforcing any of the provisions of the License Agreement or as a result of your failure to pay amounts when due.

16.  Site Inspection Fee:  actual costs and expenses, but no less than $500 per additional inspection

• Due Date:  Upon demand.

• Only due if ZFL deems it necessary to conduct more than two on-site inspections of the site during construction.

17.  Renewal Inspection Fee:  actual costs and expenses, but no less than $500 per additional inspection

• Due Date:  Upon demand.

• Only due if more than 1 on-site inspection is required to confirm upgrades/modifications.

18.  Restaurant Inspection Fee:  actual costs and expenses, but no less than $500 per additional inspection

• Due Date:  Upon demand.

• Only due for inspections required to confirm compliance after restaurant evaluation failures.

19.  Renewal Fee:  50% of then-current initial franchise fee

• Due Date:  Due upon renewal.

• You will be required to remit a nonrefundable renewal fee upon the expiration of the initial term of the License Agreement if you are eligible and elect to renew the License Agreement. Zaxby’s may waive the renewal fee for renewals for the benefit of entities owned by Zaxby’s shareholders.

20.  Administrative Fee:  actual costs and expenses

• Due Date:  Upon demand.

• For all changes requested by you to your License Agreement, or any related agreement, subsequent to its execution, and for preparing or reviewing at your request additional documents (assignments, third party agreements, riders to lease agreements, subordination agreements, lender comfort letters or approvals, etc.), you will be charged an administrative fee equal to Zaxby’s costs and expenses.

• The administrative fee will be paid when you submit the request to Zaxby’s.

21.  Semi-Annual Conferences:  actual costs and expenses

• Due Date:  Prior to conference.

• You will be required to remit a payment to Zaxby’s prior to each conference in an amount equal to your Designated Principals’ anticipated costs and expenses at each conference less the amount the ZCF contributes toward such costs and expenses. All of the funds received by Zaxby’s are remitted to third parties for the costs and expense of the conference and none of these funds are retained by Zaxby’s.