Considering a Tropical Smoothie Cafe Franchise? Don’t Overlook These 26 Important Franchise Fees

This post was updated on June 12, 2017 to reflect information from Tropical Smoothie Cafe’s 2017 FDD.

If you are considering a Tropical Smoothie Cafe franchise, don’t get blindsided by these 26 important franchise fees (from the initial franchise fee, to the royalty fee, to 24 other fees found in Items 5 and 6 of Tropical Smoothie Cafe’s 2017 FDD).

• All fees and expenses described below are nonrefundable. All fees are uniformly imposed. Except as otherwise indicated below, Tropical Smoothie Cafe imposes all of the fees and expenses listed, and they are payable to it.

• Tropical Smoothie Cafe may require you to pay any or all periodic or recurring fees to it by electronic funds transfer. It requires you to sign the Pre-Authorized Bank Form attached as Exhibit “D” to the disclosure document.

1.  Initial Franchise Fee:  $12,500 to $25,000

• The initial franchise fee for a single Franchised Business is $25,000, payable in full upon execution of the Franchise Agreement.

• If Tropical Smoothie Cafe approves, and you commit to open more than one Store within a defined development schedule (generally 2 per year), then it will reduce the initial franchise fees for the second and additional Stores to $15,000 each.

• The initial franchise fee for the second and each subsequent Store to be developed will be due at the time you sign the Franchise Agreements.

• From time to time, Tropical Smoothie Cafe may discount or reduce the initial franchise fees for certain prospects due to special circumstances (e.g., reopening a closed Store, a franchisee with multiple units who does not need initial training or support, etc.).

• During 2016, the initial franchise fees paid to Tropical Smoothie Cafe ranged from $1.00 to $25,000.00.

• In all cases, the initial franchise fee is deemed fully earned by Tropical Smoothie Cafe upon receipt and is nonrefundable.

• Tropical Smoothie Cafe uses the initial franchise fee to provide training and other services to its franchisees.

• Tropical Smoothie Cafe is a member of the International Franchise Association (“IFA”) and participates in the IFA’s VetFran program, which provides financial incentives to qualified veterans to help them acquire franchised businesses.

• In support of this program, Tropical Smoothie Cafe currently reduces the initial franchise fee for qualified veterans, to $12,500 for the first and each subsequent Franchised Business developed.

2.  Grand Opening Contribution:  at least $7,500

• If you have not previously developed and opened a Tropical Smoothie Cafe Store then, unless otherwise required by applicable state law, you will pay to Tropical Smoothie Cafe an amount to be used to pay for your Grand Opening Marketing Program in accordance with the Grand Opening Marketing Budget and Plan you and Tropical Smoothie Cafe develop (the “Grand Opening Contribution”).

• The Grand Opening Contribution will require you to spend at least $7,500 and will be payable upon execution of the Franchise Agreement.

• If, for any reason, applicable state law does not permit Tropical Smoothie Cafe to collect the Grand Opening Contribution prior to opening your Store, then you must pay its approved vendors and service providers for their products and services furnished in accordance with the Grand Opening Marketing Program at the times when due based on invoices presented to you.

• Except as described above, Tropical Smoothie Cafe charges the initial franchise fee uniformly to all franchisees.

• All of the foregoing fees and payments are fully earned by Tropical Smoothie Cafe on receipt and are nonrefundable.

Incentive Referral Program

• From time to time, Tropical Smoothie Cafe and its Area Developers may utilize incentive referral programs for its existing franchisees and their employees, as well as its vendors, to refer franchise prospects to it.

• Under these programs, Tropical Smoothie Cafe may pay cash compensation or provide other benefits and inducements for the referral of qualified franchise prospects.

• In many cases, the compensation or benefit will not be paid unless the franchise prospect enters into a Franchise Agreement with Tropical Smoothie Cafe.

• These referral programs may be altered, modified, suspended, or terminated at any time.

• This referral program is available in all states, with the exception of the State of Washington.

3.  Royalty Fee:  6% of Gross Sales

• Due Date:  Payable on Wednesday of each week for the prior week’s Gross Sales.

• You must pay the Royalty Fee by electronic funds transfer.

• “Gross Sales” means all sales generated through the Franchised Business, whether for cash or credit, and income of every kind or nature related to the Franchised Business including barter, trade, and off-site catering and delivery.

• Gross Sales does not include (i) bona fide refunds to customers, (ii) sales taxes collected by you, (iii) sales of used equipment not in the ordinary course of business, or (iv) sales of prepaid cards or similar products (but the redemption of any such card or product will be included in Gross Sales).

• You may not deduct payment provider fees (e.g., bank or credit card company fees and gift card vendor fees) from your Gross Sales calculation.

4.  National Marketing Fee:  up to 3% of Gross Sales, currently 2%

• Due Date:  Payable on Wednesday of each week for the prior week’s Gross Sales.

• Tropical Smoothie Cafe may use these funds to create marketing, advertising, and promotional materials for your use, or it may use these funds for marketing, advertising, and public relations programs and materials on a system-wide basis.

• You must pay the National Marketing Fee by electronic funds transfer.

• Beginning January 1, 2018, this fee will increase to 3%.

5.  Local Advertising Cooperative Contribution:  2% of Gross Sales

• Due Date:  Payable on Wednesday of each week for the prior week’s Gross Sales.

• Tropical Smoothie Cafe (or its designee) administers these funds in accordance with the direction of the cooperative members.

• You must pay the Local Advertising Cooperative Contribution by electronic funds transfer.

6.  Technology Fees:  currently $200 per month per Store

• Due Date:  Payable the 3rd week of each month.

• You must pay Tropical Smoothie Cafe the amount it designates for the use of its mandated management information system, which includes auto-polling services of the Point of Sale System, and 24/7 monitoring of in-cafe network, firewall, and managed devices via the Internet.

• Tropical Smoothie Cafe deducts the MIS Fee from your account by electronic funds transfer.

7.  Online Ordering:  currently, $44 per month, $105 per quarter Micros Licensing Fee per Store location

• Due Date:  Payable the 3rd week of each month.

• You must participate in the online ordering services. For the mandated online ordering services, you pay Tropical Smoothie Cafe for installation based on its prepayment to the vendor (currently Micros); then it pays the online ordering vendor (currently Mobo Systems, Inc. d/b/a OLO) the monthly fee on your behalf and invoices you.

• Currently, Tropical Smoothie Cafe withdraws these fees out of your Local Advertising Cooperative Contribution Account.

8.  Interest Charge on Late Payments:  the lower of (i) 18% per annum, or (ii) the highest rate permitted by applicable state law

• Due Date:  On demand.

• Only required if payment is late.

9.  Late Fee:  $25 per week (or portion thereof)

• Due Date:  On demand.

• Only required if any payment is late.

10.  Non-Compliance Fee:  up to $500 each time you default and for each week (or portion thereof) that the default continues.

• Due Date:  As stated in Tropical Smoothie Cafe’s notice.

• Only required, at Tropical Smoothie Cafe’s option, if it reasonably believes you have committed an event of default under the Franchise Agreement.

11.  Reimbursement:  Tropical Smoothie Cafe’s out-of-pocket expenses

• Due Date:  Within 15 days of request.

• Only required if Tropical Smoothie Cafe pays (or has become obligated to pay) monies that you owed to a third party or that you were obligated to pay a third party as part of Tropical Smoothie Cafe’s system.

12.  Audit Fee:  cost of audit, plus interest on late payment

• Due Date:  Immediately upon determination by audit.

• Payable only if (i) Tropical Smoothie Cafe conducts an audit of your business because you failed to submit required reports or were otherwise not in compliance with its system, or (ii) it finds, based on an audit, that you have understated amounts owed to it by 2% or more.

13.  Transfer Fee:  5% of the total sales price or $10,000, whichever is greater; or, $2,500 upon transfer of minority interest

• Due Date:  Before transferring.

• Payable when more than a 49% interest in the Franchised Business is transferred to anyone including an unrelated third party.

• The Transfer Fee is $2,500 if you transfer an interest of 49% or less to someone other than a direct family member or the guarantor of your obligations.

14.  Management Fee:  10% of Gross Sales for the period in which Tropical Smoothie Cafe operates the Franchised Business

• Due Date:  As agreed.

• Payable during the period that Tropical Smoothie Cafe’s appointed manager manages the Franchised Business to avoid interruption of business operations, at its option, in the event that (i) you or your majority owner dies or becomes disabled, (ii) Tropical Smoothie Cafe elects to purchase the business assets upon expiration or termination of the Franchise Agreement, or (iii) you operate the Franchised Business in a manner that presents a danger to the health or safety of any person.

• Tropical Smoothie Cafe’s management of the Franchised Business will not exceed 90 days without your consent.

• Tropical Smoothie Cafe will account to you for all income of the Franchised Business during the period in which its manager manages the business.

15.  Default Cure:  Tropical Smoothie Cafe’s costs and expenses (including the allocation of any internal costs) for such action, plus 10% as an administrative fee

• Due Date:  On demand.

• Payable if you breach or default under any provision of the Franchise Agreement, and Tropical Smoothie Cafe takes action to cure the default on your behalf.

16.  Supplier Approval:  reasonable costs and expenses of inspection and testing estimated to range from $500 to $2,000

• Due Date:  As invoiced.

• Tropical Smoothie Cafe may require you to pay it for its reasonable costs and expenses if it evaluates a proposed product, service, or supplier at your request.

17.  Customer Satisfaction:  reimbursement of Tropical Smoothie Cafe’s costs and expenses

• Due Date:  As invoiced.

• You must participate in any customer satisfaction and/or franchise compliance programs (e.g. guest surveys, mystery shoppers, etc.) that Tropical Smoothie Cafe designates.

• Tropical Smoothie Cafe may require you to reimburse it for the cost of such programs or to pay the vendors directly.

• You must also reimburse Tropical Smoothie Cafe if you fail to respond to and resolve any customer complaints or negative feedback, and it chooses to do so on your behalf.

18.  Indemnification: will vary under circumstances

• Due Date:  On demand.

• You must indemnify Tropical Smoothie Cafe when certain of your actions result in loss or damages to it.

19.  Liquidated Damages:  amount equal to the average Royalty Fees for the last 12 months (or shorter period, if Franchised Business has been in operation less than 12 months), multiplied by the lesser of (i) 18 or (ii) the number of months remaining in the term.

• Due Date:  On demand.

• Tropical Smoothie Cafe may require you to pay it this amount in the event you terminate the Franchise Agreement without cause or it terminates the Franchise Agreement for cause.

• If applicable law does not permit Tropical Smoothie Cafe to collect liquidated damages, it will be entitled to collect actual damages.

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

• Due Date:  On demand.

• The prevailing party in any legal proceeding is entitled to reimbursement of its costs and expenses, including reasonable accounting and attorneys’ fees.

21.  Casualty Insurance Proceeds:  will vary under circumstances

• Due Date:  On demand.

• You must pay Tropical Smoothie Cafe 5% of the insurance proceeds of any business interruption or other insurance application to loss of revenue that you received in the event of fire or other casualty that results in damage or destruction of the Franchised Business.

• If you do not reconstruct the Franchised Business in a prompt and timely manner, your Franchise Agreement will automatically terminate.

22.  Relocation of Franchised Business:  will vary under circumstances

• Due Date:  On demand.

• You must reimburse Tropical Smoothie Cafe for the out of-pocket expenses it incurs in helping you relocate.

23.  Training:  will vary under circumstances.

• Due Date:  As incurred.

24.  Remodel Marketing Expense:  $3,750

• Due Date:  As incurred.

• Tropical Smoothie Cafe may require you to spend $3,750 on marketing for any remodel.

25.  Tax Reimbursement:  will vary under circumstances

• Due Date:  On demand.

• You must reimburse Tropical Smoothie Cafe any amounts a taxing authority imposes on it, any “franchise” tax or other tax that is based on your gross sales, gross revenues, business activities, or operation of your Franchised Business.

26.  Third Party Inspection Fees:  will vary under circumstances

• Due Date:  On demand.

• If you have failed to meet Tropical Smoothie Cafe’s standards after two inspections, and it chooses to conduct a third inspection by a third party, then you must reimburse Tropical Smoothie Cafe for its out-of-pocket expenses, including service fees, travel, and living expenses.

Tagged as: Tropical Smoothie Cafe