Updated on May 9, 2018.
If you are considering a Music Go Round franchise, don’t get blindsided by these 18 important franchise fees (from the initial franchise fee, to the royalty fee, to 16 other fees found in Items 5 and 6 of Music Go Round’s 2018 FDD).
You must pay to Music Go Round “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 Music Go Round’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 Music Go Round. 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, and you must pay the Initial Franchise Fee for each Store in a lump sum to Music Go Round when you sign the Franchise Agreement for that Store. The Initial Franchise Fee is nonrefundable.
2. Point-of-Sale (POS) System: $19,300 to $22,200
- You must use in your Store the point-of-sale system (the “POS System”) which Music Go Round has selected for your Business System, and you must enter into a Computer Software License Agreement with Music Go Round for use of its proprietary software program (the “Proprietary Software”).
- The initial cost of the POS System and Proprietary Software will range from $19,300 to $22,200 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 Music Go Round’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: 4% 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 Music Go Round franchisees to other Music Go Round 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, Music Go Round 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.
- Music Go Round requires you to allow it to withdraw continuing and other fees directly from your bank account.
4. Marketing Fee: $1,000 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 Music Go Round 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 Music Go Round 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, Music Go Round 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 Music Go Round’s discretion.
7. Advertising Fee: if Music Go Round imposes this fee, you will pay up to 2% of your Gross Sales
- Due Date: If Music Go Round imposes this fee, it will be due on or before Wednesday of each week for the previous week.
- Music Go Round 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 Music Go Round 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. Remodeling Expenses: will vary under circumstances
- Due Date: When incurred.
- You must modernize your Store upon notice from Music Go Round, although it cannot require you to do so more than once every 5 years. The modernization must conform to the standards that Music Go Round requires at that time for similarly situated new Music Go Round Stores.
- The scope of modernization may range from simply repainting the Store to completely refurbishing the entire Store, including replacement of fixtures, sign supplies, equipment, and POS System.
- Music Go Round 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 Music Go Round’s approved third parties and/or preferred vendors. Before you modernize your Store, you must submit your modernization plans to Music Go Round for its approval.
13. Insurance: will vary under certain circumstances
- Due Date: When Music Go Round requests reimbursement.
- Payable to Music Go Round if you fail to pay insurance premium and Music Go Round pays it for you.
14. Inventory: will vary under circumstances
- Due Date: When incurred.
- You will need to continually replenish your Store inventory (both new and used items).
- Your quarterly costs for inventory will vary significantly, depending on such factors as seasonal changes in demand and your Store sales, although these costs generally will range from $80,000 to $100,000.
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 Music Go Round 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.
- Music Go Round may recover costs and reasonable attorneys’ fees if you lose in a dispute with it.
18. Technology Fee: currently, $0
- Due Date: Periodically, if established.