Updated May 13, 2020.
If you are considering a Plato’s Closet franchise, don’t get blindsided by these 17 important franchise fees (from the initial franchise fee, to the royalty fee, to 15 other fees found in Items 5 and 6 of Plato’s Closet’s 2020 FDD).
You must pay to Plato’s Closet “Initial Fees” to cover the cost of goods and services that it provides to you before your Store opens. The Initial Fees include the Initial Franchise Fee and the initial cost of Plato’s Closet’s point-of-sale system and proprietary software.
Each component of the Initial Fees is described below:
1. Initial Franchise Fee: $15,000 to $25,000
- If you are opening a single Store, you must pay an “Initial Franchise Fee” of $25,000 to Plato’s Closet. The Initial Franchise Fee is $15,000 if you are currently opening a second or subsequent Store or if you are an existing franchisee of one of the franchisor’s other franchised concepts.
- You must sign a separate Franchise Agreement for each Store. You must pay the Initial Franchise Fee for your first Store in a lump sum to Plato’s Closet when you sign the Franchise Agreement. The Initial Franchise Fee is nonrefundable.
2. Point-of-Sale (POS) System: $20,700 to $26,600
- You must use in your Store the point-of-sale system (the “POS System”) which Plato’s Closet has selected for your Business System, and you must enter into a Computer Software License Agreement with Plato’s Closet for use of its proprietary software program (the “Proprietary Software”).
- The initial cost of the POS System and Proprietary Software will range from $20,700 to $26,600 for each Store, which includes the DRS Maintenance Fee. This amount is not refundable.
- You will generally purchase the POS System and Proprietary Software immediately before you attend Plato’s Closet’s second week of training.
- The franchisor, through its subsidiary Winmark Business Credit, Inc., may lease to you the POS System or other equipment necessary to operate your Business. The monthly payment and finance charges will vary based on the value of the leased equipment, type of leased equipment, your financial health, your credit history, the type of lease, and other factors.
3. Continuing Fee: 5% of your “Gross Sales”
- Due Date: On or before Wednesday of each week for the previous week.
- “Gross Sales” means the total revenues you receive from the sale of goods and services, whether by cash or by check, credit card or trade, in connection with the Store, less customer refunds and returns and sales or similar taxes. Gross Sales includes any sales permitted though the Internet.
- Gross Sales do not include wholesale transactions from Plato’s Closet franchisees to other Plato’s Closet franchisees in good standing with the franchisor.
- In certain situations, other franchisees may be paying a lower percentage rate for continuing fees than you are. All new franchisees are required to pay the percentage rate stated in the disclosure document. However, a franchisee with an earlier Franchise Agreement may have been required to pay a lower percentage rate than the stated amount or may be required to pay less upon renewal of their Franchise Agreement.
- In the future, Plato’s Closet may change the continuing fees for new and renewing franchisees unless your Franchise Agreement specifically grants you the right to renew your Franchise Agreement at a lower rate.
- Plato’s Closet requires you to allow it to withdraw continuing and other fees directly from your bank account.
4. Marketing Fee: $1,500 per year
- Due Date: Due January 1 of each year.
5. Cooperative Advertising: maximum amount is 5% of your Gross Sales
- Due Date: Established by the franchisor or franchisees.
- The franchisor or local Plato’s Closet franchisees may establish an advertising cooperative in your area. The local advertising cooperative will establish the amount of cooperative advertising fees.
- If a company-owned store is a member of your cooperative, it will have voting power equal to that of franchised stores. Company-owned stores will not have controlling voting power in any local cooperative.
- There are currently no company-owned Plato’s Closet stores.
6. Local Marketing Expenses: minimum amount, when combined with cooperative advertising expenses, is 5% of your Gross Sales
- Due Date: Minimum amount must be spent during each calendar year.
- To the extent your annual contributions to cooperative advertising programs are less than 5% of the Gross Sales for your Store, you must conduct additional advertising and marketing activities in your local geographic area.
- Your local advertising activities, however, will not eliminate your obligations to contribute to cooperative advertising programs.
- If you do not spend at least 5% of Gross Sales for the calendar year for cooperative or local advertising, Plato’s Closet may require that you pay it the difference between what you should have spent for advertising during the calendar year and what you actually spent, with the money to be spent on advertising initiatives in your market in the subsequent year at Plato’s Closet’s discretion.
7. Advertising Fee: if Plato’s Closet imposes this fee, you will pay up to 2% of your Gross Sales
- Due Date: If Plato’s Closet imposes this fee, it will be due on or before Wednesday of each week for the previous week.
- Plato’s Closet may, with 60 days’ notice, increase your minimum advertising expenditures up to a total of 6% of your Store’s Gross Sales. Of the 6%, up to one-third (or 2% of Gross Sales) will be paid in the form of an “Advertising Fee” to Plato’s Closet for deposit in an “Advertising Fund” to be managed by the franchisor. The balance of the 6% minimum advertising requirement must be used for cooperative advertising and local advertising.
8. Transfer Fee: $10,000
- Due Date: Before completion of transfer.
- This fee is payable when the Franchise Agreement or a substantial portion of the assets of the Store or any controlling interest in the franchisee is transferred.
9. Audit Expenses: cost and expenses related to audit
- Due Date: After inspection or audit.
- Payable only if understatement is greater than 2%.
10. Renewal Fee: $5,000
- Due Date: 30 days before renewal of Franchise Agreement.
11. DRS Maintenance Fee: the fee for the term of the current Franchise Agreement is $1,000. Upon renewal, the then-current rate for the fee will be applied.
- Due Date: The fee will be due upon placement of order of the POS System, and upon renewal of the Franchise Agreement.
- This fee is for upgrades to the antivirus and database engine software that supports the DRS software and is payable when you initially order your POS System and upon renewal of your Franchise Agreement.
12. Technology Fee: currently, $0
- Due Date: Periodically, if established.
13. Remodeling Expenses: will vary under circumstances
- Due Date: When incurred.
- You must modernize your Store upon notice from Plato’s Closet, although it cannot require you to do so more than once every 5 years. The modernization must conform to the standards that Plato’s Closet requires at that time for similarly situated new Plato’s Closet Stores.
- The scope of modernization may range from simply repainting the Store to completely refurbishing the entire Store, including replacement of fixtures, exterior signage, sign supplies, equipment, and POS System.
- Plato’s Closet cannot estimate the current costs for a modernization project because the scope and extent of the modernization will vary based on the then-current brand standards, the condition of the Store, and the cost of labor and materials at that time.
- You may make these payments in whole or in part to Plato’s Closet’s approved third parties and/or preferred vendors. Before you modernize your Store, you must submit your modernization plans to Plato’s Closet for its approval.
14. Insurance: will vary under certain circumstances
- Due Date: When Plato’s Closet requests reimbursement.
- Payable to Plato’s Closet if you fail to pay insurance premium and Plato’s Closet pays it for you.
15. Interest Expenses: lesser of 18% per year or maximum rate permitted by law
- Due Date: When due.
- Payable if Continuing Fee or other amounts due Plato’s Closet are not timely paid.
16. Lease Payment: will vary under certain circumstances
- Due Date: When due.
- Payable if you sign a lease agreement for the equipment used in your store.
17. Costs and Attorneys’ Fees: will vary under circumstances
- Due Date: When incurred.
- Plato’s Closet may recover costs and reasonable attorneys’ fees if you lose in a dispute with it.