If you are considering a Spray-Net 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 Spray-Net’s 2020 FDD).
1. Initial Franchise Fee: $45,000
- You must pay Spray-Net an initial franchise fee amounting to $45,000 (the “Initial Franchise Fee”), which is deemed fully earned upon execution of your Franchise Agreement and Spray-Net has the right to collect in a lump sum payment at that time.
- In certain circumstances where a prospective franchisee can demonstrate sufficient financials and otherwise satisfies all of Spray-Net’s then-current System criteria to be awarded a franchise, Spray-Net may permit that prospective franchisee to pay it their Initial Franchise Fee as follows: (i) $10,000 upon execution of the Franchise Agreement; and (ii) $35,000 upon the sooner of (a) the date you receive any financing in connection with the Franchised Business, or (b) 60 days from the date of execution of your Franchise Agreement.
- Regardless, the Initial Franchise Fee is non-refundable upon payment.
2. Initial Training Fee: $15,000
- You must pay Spray-Net a fee in connection with the initial training that it provides to you or, if franchisee is an entity, your operating principal prior to and around the time you initially launch your Franchised Business amounting to $15,000 (the “Initial Training Fee”), which shall be deemed fully earned and non-refundable upon signing of the Franchise Agreement.
3. Start-Up Package: $2,000 to $5,000
- You must pay Spray-Net an estimated approximately $2,000 to $5,000 for the initial package of business supplies such as uniforms, marketing brochures, letterhead, and business cards (the “Start-Up Package”), which will be due and deemed fully earned upon execution of your Franchise Agreement.
4. Initial Marketing Investment: $15,000
- In addition to your “Local Advertising Requirement” described below, you must expend $15,000 that will be used prior to and around the initial launch of your Franchised Business on certain digital and other marketing efforts associated with Spray-Net’s System (the “Initial Marketing Investment”).
- While the Initial Marketing Investment will be paid out to Spray-Net’s approved or designated third-party suppliers for these kinds of services, Spray-Net expects and intends to collect this amount directly from you and may keep a portion of the Initial Marketing Investment as consideration for managing the placement and suppliers associated with this initial marketing and related activities designed to (a) increase visibility of the Franchised Business within your Designated Territory, and/or (b) generate prospective client interest and sales appointments prior to and up through the opening and initial operations of your Franchised Business.
- Your Initial Marketing Investment is due upon execution of your Franchise Agreement, unless Spray-Net agrees otherwise in writing.
5. Territory Addendum Additional Territory Fee: $30,000
- In the event you are offered and awarded the right to operate your Franchised Business within an Additional Territory, then you will be required to pay Spray-Net an Additional Territory Fee amounting to $30,000 at the time you execute your Franchise Agreement and Territory Addendum.
6. Royalty: 7% of your Gross Sales generated by your Franchised Business
- Due Date: Payable through the EFT Program each Monday afternoon following the end of the previous Business Week.
- Your Royalty Fee will commence once your Franchised Business commences operations and/or otherwise generating revenue.
- The term “Minimum Sales Benchmark” or “MSB” means the minimum Gross Sales that you are expected and required to generate in connection with each Franchised Business.
MSB for Single Territory
- First Year of Operation: $275,000
- Second Year of Operation: $325,000
- Third Year of Operation: $400,000
- Fourth Year of Operation: $420,000
- Fifth Year of Operation: $441,000
- Each Subsequent Year of Operation: after the fifth MSB Period, the minimum benchmark in your sixth and each subsequent year will increase by 5% of the prior year’s MSB
7. Ongoing Product Purchases: varies based on sales within your Designated Territory (including, if applicable, your Additional Territory)
- Due Date: Payable prior to, or at, delivery.
- You are required to purchase Spray-Net’s Proprietary Products on an ongoing basis as necessary to service your customers. Spray-Net may also require you to purchase additional items from it or its affiliate as necessary to service your customers.
8. Local Advertising Requirement: 8% of your then-current applicable MSB (your “LAR”)
- Your Local Advertising Requirement must be expended as Spray-Net directs or otherwise authorizes. Spray-Net may require that you expend all or some portion of your Local Advertising Requirement on digital marketing, advertising, and promotional campaigns and/or any other related advertising/marketing services that must be acquired or purchased from one or more Approved Suppliers that Spray-Net designates.
9. Contribution to Brand Development Fund (the “Fund”): currently, 3% of your applicable MSB
- Due Date: As Spray-Net determines appropriate and provides you with notice of in the Manuals or otherwise in writing.
- Spray-Net has established a brand development fund (the “Fund”) for purposes of promoting, marketing, advertising, and otherwise developing the System, Proprietary Marks, Approved Services, and the brand generally, as Spray-Net determines appropriate.
- Spray-Net will administer the Fund and will provide you with prior written notice of any change to your Fund Contribution.
10. Business Management Software: then-current software fee charged by Spray-Net or other provider it designates. Currently, $120/month, plus 0.25% of Gross Sales generated by the Franchised Business.
- Due Date: Monthly based, in part, on the Gross Sales generated in the prior calendar month.
- This amount is paid to Spray-Net’s Approved Supplier (currently, Spray-Net) for the business management and project/sales tracking software that Spray-Net has developed and branded for use in connection with the System (the “Business Management Software”).
11. Supplemental LAR Investment Expenditures: Spray-Net will collect and expend the following amounts on supplemental local advertising within your Designated Territory as Spray-Net and/or its Approved Supplier(s) for marketing and related services determine appropriate: Designated Territory without Additional Territory: $10,000 in connection with your second year of operation and nothing further. Designated Territory that includes Additional Territory: (i) an additional $25,000 in connection with the second year of operations; and (ii) $10,000 in connection with the third year of operations.
- Due Date: As agreed. Typically, Spray-Net will collect this amount in a lump sum in January of each calendar year or otherwise permit you to make quarterly payments over the year at issue in a separate writing.
12. Renewal Fee: $5,000
- Due Date: At the time of your renewal request.
- You must meet certain criteria before Spray-Net will approve any request you make to renew your franchise.
13. Transfer Fee: $7,500 per territory
- Due Date: At the time of your assignment or transfer proposal.
- You and your proposed transferee must meet certain other conditions before Spray-Net can evaluate and/or approve any transfer proposal you make in connection with (a) your franchise or Franchise Agreement, and/or (b) any ownership interest in the franchisee (if an entity).
- If you are an individual and wish to assign the franchise and Franchise Agreement to an entity that is wholly owned by you and formed for purposes of owning the Franchised Business, then Spray-Net may only charge you the legal fees and other costs it incurs in connection with evaluating and memorializing its consent to the assignment (and any conditions associated with the transfer).
14. Technology Fee: if and when charged, the then-current technology fee Spray-Net communicates in writing (the “Technology Fee”). Currently, Spray-Net does not charge a Technology Fee but it reserves the right to do so in the future.
- Due Date: As required (most likely monthly).
- Spray-Net reserves the right to charge you its then-current Technology Fee as consideration for any technology it (a) determines to associate, improve, or otherwise develop with the System and cover all or some portion of with this fee, and/or (b) collect on behalf of Spray-Net’s Approved Supplier and subsequently pay them under any kind of master agreement or similar relationship.
15. Training Fee: then-current training fee for the applicable training at issue (each, a “Training Fee”). Spray-Net does not currently charge the Training Fee, but reserves the right to do so in the future.
- Due Date: As incurred.
- Spray-Net may charge you its then-current training fee in the following circumstances: (i) if you or one of your managers/personnel that is required to complete Spray-Net’s initial training is replaced and/or fails to complete initial training and is required to re-attend; (ii) if you request that Spray-Net provide you with any additional training or otherwise request that it provide you with on-site assistance in connection with your Franchised Business; and (iii) any remedial training that Spray-Net requires you to attend and complete as part of the cure actions in connection with your default under the Franchise Agreement (“Remedial Training”).
- In other circumstances where Spray-Net requires you to attend additional or refresher training at its request, Spray-Net will not charge you a Training Fee.
16. Relocation Fee: actual cost incurred by Spray-Net
- Due Date: As incurred.
- If you receive Spray-Net’s prior written consent to relocate the Franchised Business, you must also reimburse Spray-Net for the reasonable costs and expenses that it incurs in connection with evaluating and approving the proposed relocation.
17. Conference/Convention Fee: Spray-Net’s then-current enrollment fee to attend Spray-Net’s annual summit or convention, if and when established (the “Convention”). Currently, approximately $2,400 payable at $200 per month.
- Due Date: 120 days prior to attending.
- Spray-Net expects to conduct an annual Summit/Convention each year, and attendance is mandatory.
- Spray-Net reserves the right to charge its then-current enrollment fee in connection with any conference/convention that it requires you to attend. You will also be responsible for your costs/expenses associated with attending any conference/convention.
The fees below will only be charged if you fail to comply with the terms of your Franchise Agreement.
18. Audit Fee: actual cost incurred by Spray-Net
- Due Date: Immediately after 2% or more understatement of sales receipts is determined by Spray-Net’s inspection.
- If underreporting of sales is determined, you pay the Royalty due plus interest, along with all the costs related to performing the audit. There is no charge for the audit if sales are reported accurately.
19. Non-Reporting Enforcement Fee: Spray-Net reserves the right to charge you an enforcement fee amounting to $500 in connection with each instance where you fail to (a) timely input all prospect and/or client information, contracts, and/or other documents into the required business management system software, and/or (b) otherwise underreport or fail to report any Gross Sales, revenue, or other information into that software system.
- Due Date: Immediately upon demand after an inspection has been conducted.
- Spray-Net charges this enforcement fee specifically to underscore and highlight the importance of the required reporting and data entry you must enter into your business management software as such information becomes available.
20. Delinquency Charges and Interest: 18% per year, or higher rate as permitted by applicable law
- Due Date: Immediately after date payment is due.
- Charged on all fees and accounts receivable due to Spray-Net when not paid timely.
- In addition to this interest, Spray-Net reserves the right to charge a late fee amounting to $500 in connection with any payment that is late or that Spray-Net is not able to timely collect via your EFT Account due to insufficient funds at that time.
21. Indemnification; Attorneys’ Fee; Costs and Expenses of Enforcement: will vary according to circumstance
- Due Date: Upon demand.
- You must reimburse Spray-Net for its attorneys’ fees and other costs that it incurs in connection with any claims and/or damages that it incurs in connection with any third-party action or otherwise arising out of, or related to (a) your breach of misrepresentation of your Franchise Agreement, (b) management or operation of your Franchised Business, and/or (c) other specific actions or omissions on your or your representatives’ part detailed more fully in your Franchise Agreement.
- You must also reimburse all attorneys’ fees and other costs Spray-Net incurs in connection with (a) enforcing the terms of the Franchise Agreement, and/or (b) any litigation Spray-Net is required to initiate and/or defend against related to the Franchise Agreement, provided Spray-Net prevails.