Considering a Spenga Franchise? Don’t Overlook These 22 Important Franchise Fees

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If you are considering a Spenga franchise, don’t get blindsided by these 22 important franchise fees (from the initial franchise fee, to the royalty fee, to 20 other fees found in Items 5 and 6 of Spenga’s 2019 FDD).

1.  Initial Franchise Fee:  $49,500

  • When you enter into a Franchise Agreement with Spenga for the right to operate a given franchised Studio, you will be required to pay Spenga an initial franchise fee amounting to $49,500.

2.  Development Fee:  based on the number of franchises Spenga is granting you the right to develop within your Development Area

  • If Spenga grants you the right to open multiple franchised Studios under a Development Agreement, you must pay Spenga a Development Fee upon execution of your Agreement. The Development Fee will be paid in a lump sum as follows based on the number of franchises Spenga is granting you the right to develop within your Development Area:
  • 1 Studio:  $49,500
  • 2 Studios:  $89,500
  • 3 Studios:  $119,500
  • 4 Studios:  $149,000
  • 5 Studios:  $178,000
  • 6 Studios:  $206,000
  • 7 Studios:  $233,000
  • 8 Studios:  $258,000
  • 9 Studios:  $281,000
  • 10 Studios:  $299,500
  • You will be required to enter into Spenga’s then-current form of Franchise Agreement for each franchised Studio you wish to open under your Development Agreement, but you will not be required to pay an Initial Franchise Fee at the time you execute each of these Franchise Agreements.
  • You will sign the Franchise Agreement governing the first Franchised Business you have the right to open within your Development Area at the same time as your Development Agreement.
  • The Development Fee will be deemed fully earned upon payment, and is not refundable under any circumstances.

3.  Royalty Fee:  the greater of: (i) 6% of the “Net Cash In” generated by your Studio over a given reporting period; or (ii) royalty payment of $500 per month (the “Minimum Royalty”)

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  • Due Date:  On or before the 5th of each calendar month based on the Net Cash In (or “NCI”) generated by your Studio during the preceding month.
  • The NCI generated by your Studio in each payment period means all revenue generated from the sale and provision of any and all gift cards, memberships, and other Approved Services (classes, etc.) and Approved Products (merchandise, apparel, and/or equipment) at or through your Studio, as well as the proceeds from any business interruption insurance related to the non-operation of your Franchised Business, whether such revenues are evidenced by cash, check, credit, charge, account, barter, or exchange.
  • “NCI” does not include (a) tips that clients pay to instructors of the Studio that are retained by that instructor, (b) any sales tax and equivalent taxes that are collected by the franchisee for or on behalf of any governmental taxing authority and paid thereto, or (c) the value of any allowance issued or granted to any client of the Franchised Business that is credited in good faith by the franchisee in full or partial satisfaction of the price of the Approved Products or Services.
  • Your Royalty Fee will be the consideration paid for the franchise/license and any other rights you have under your Franchise Agreement after your Studio opens.

4.  Brand Development Fund Contribution:  up to 2% of the NCI generated from your Studio (your “Fund Contribution”). Currently, however, Spenga does not collect any Fund Contribution.

  • Due Date:  Collected at the same time and in the same manner as your Royalty Fee.
  • Spenga has the right to establish and administer a brand development fund (the “Fund”) designed to (a) promote the brand, Proprietary Marks, System, Studio locations, and Approved Services and Approved Products, and/or (b) otherwise enhance and develop the brand and System, as Spenga determines appropriate in its discretion.

5.  Local Marketing Requirement:  minimum of $3,000 to $4,000 per month, as specified by Spenga in writing (“Local Marketing Requirement” or “LMR”)

  • Due Date:  Must be spent monthly according to the Operations Manual as per your marketing budget.
  • Spenga may require that all or some portion of your LMR be expended on local advertising or marketing materials and/or services that will be purchased from its Required Supplier for the same.
  • This is the minimum you must spend within your Designated Territory to comply with your Franchise Agreement, but Spenga strongly encourages you to expend additional amounts on such advertising and marketing materials to increase visibility and generate clients as you and your business advisors determine appropriate.

6.  POS System and Payment Processing System (collectively, the “Designated POS System”):  then-current fee charged by Spenga’s required supplier for the Designated POS System. Currently, approximately $299 per month (per Studio).

  • Due Date:  As arranged with third-party supplier.
  • You are required to pay a fee to a third-party vendor for the point-of-sale system you are required to use in connection with the operation of your franchised Studio.
  • Currently, the designated POS System functionality also covers collection and payment processing services designed to collect and process amounts due the Studio from its clientele.

7.  Technology Fee:  Spenga’s then-current technology fee (the “Technology Fee”). Currently, $500 to $600 per month.

  • Due Date:  Collected at the same time and in the same manner as your Royalty Fee.
  • Spenga reserves the right to collect a Technology Fee in connection with any costs it incurs in establishing and maintaining an intranet, extranet, online portal, website, online advertising tools, mobile application, and/or any other technology for use in connection with the Franchised Business.

8.  Training Fee(s):  then-current training fee Spenga charges (the “Training Fee”), which will vary based on whether it is providing initial training or additional/refresher training it requires. Currently, Spenga charges: (i) $1,000 for each person after the initial 3 persons that attend its initial training; and
(ii) $350/day per trainer for all other training.

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  • Due Date:  As agreed upon by you and Spenga.
  • Spenga may require you, as well as your Controlling Principal(s) and your Designated Manager (if any), to attend: (i) up to 5 days of refresher/additional training in a given year (“Additional Training”); and (ii) up to 5 days of remedial training that Spenga has the right to require you to attend and complete if you are not operating your Studio in compliance with the Franchise Agreement or Spenga’s Manuals (“Remedial Training”).
  • Spenga will not charge you its then-current training fee (the “Training Fee”) in connection with any Additional Training that it requires, but it reserves the right to charge its then-current training fee in connection with any (1) Additional Training that you request, or (2) Remedial Training.
  • Spenga may also charge you this Training Fee if it is required to provide on-site assistance at your Studio at your request, in which case you will also be responsible for the costs and expenses Spenga incurs in connection with providing such on-site assistance.
  • Spenga will not charge you a Training Fee in connection with any day-to-day assistance it provides to you remotely via the telephone, e-mail, Skype or related channel, or for any Additional Training that Spenga requires that you have not requested.
  • With regards to those attending its initial training, Spenga will only charge a Training Fee for initial training in connection with: (i) any person that wishes to attend initial training beyond you and up to 2 other individuals; and (ii) any replacement personnel or individual that did not successfully complete such initial training and wishes to re-attend.
  • You will be responsible for all costs and expenses that you and your trainees incur in connection with attending any Additional Training, Remedial Training, or initial training in connection with the Studio.

9.  Transfer Fee:  Franchise Agreement – $10,000; Development Agreement – $10,000 per unexpired and unexercised development right remaining under your Development Agreement

  • Due Date:  Before you transfer the franchise.
  • There are other conditions that you must satisfy in order to assign your Franchise Agreement, and you have no right to assign your Development Agreement, unless Spenga agrees otherwise in writing.
  • Any proposed assignment of your Franchise Agreement, Development Agreement, or any ownership interest in you (if you are an entity) must be approved by Spenga.

10.  Renewal Fee:  $10,000

  • Due Date:  Prior to or upon approval of your renewal request.
  • You must satisfy certain other conditions in order to renew your Franchise Agreement.

11.  Alternate or New Product or Supplier Testing:  reimbursement of Spenga’s costs

  • Due Date:  As incurred.
  • If you propose an alternate supplier or product/service that Spenga has not already authorized for use in connection with your Studio, you may be required to reimburse Spenga for the actual costs it incurs in connection with evaluating your proposal.

12.  Relocation Fee:  20% of Spenga’s then-current Initial Franchise Fee

  • Due Date:  If incurred.
  • Payable upon your request to relocate your Spenga Studio, but this fee will be returned if Spenga refuses to consent to the relocation.

13.  Audit Fees:  actual cost of audit

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  • Due Date:  Upon billing after audit.
  • Payable if audit reveals that you have underreported the Gross Sales of your Studio by 3% or more for any designated reporting period.

14.  Collection Charges:  varies

  • Due Date:  Upon demand.
  • You must pay all collection charges associated with Spenga’s efforts in collecting any amounts owed to you or Spenga under the Franchise Agreement.

15.  Advertising Cooperative Fee:  if collected, no more than the current Local Advertising Requirement

  • Due Date:  Upon demand.
  • Payable to Spenga if it assigns your Studio to a Regional Advertising Cooperative.
  • Any payment for a Regional Advertising Cooperative will be credited against your LMR.
  • If there is an affiliate-owned Studio in your Cooperative, then Spenga’s affiliate will be able to vote on all matters that you and the other Cooperative members have the right to vote on.

16.  Fees on Default and Indemnity:  attorneys’ fees, costs, interest, audit costs, default fees

  • Due Date:  Upon demand.
  • Payable in addition to other payments to Spenga.

17.  Costs and Attorneys’ Fees:  will vary according to circumstance

  • Due Date:  Upon demand.
  • You must reimburse Spenga for its attorneys’ fees and any court costs that it is forced to incur in connection with enforcing or protecting its rights under your Franchise and/or Development Agreement.

18.  Indemnification:  will vary according to circumstance

  • Due Date:  Upon demand.
  • You must reimburse Spenga for its attorneys’ fees and other costs that it incurs in connection with any third-party claims brought against Spenga that arise out of, or are related to, the operation of your Studio.

19.  Insurance:  will vary according to circumstance

  • Due Date:  Upon demand.
  • If you fail to obtain required insurance, Spenga may obtain such insurance at your expense (but is not required to do so) and charges you a service fee to do so.
  • Otherwise, these payments are made directly to your third-party insurance provider.

20.  Interest:  1.5% per month or highest commercial contract interest rate applicable laws permit

  • Due Date:  Upon demand.
  • Payable on all delinquent payments that are due to Spenga for more than 30 days.

21.  Aromatherapy:  $162 per month, plus any taxes Spenga is required to pay

  • Due Date:  Upon demand.
  • Payable each month to Spenga’s required supplier.

22.  Fitness Technology:  $249 per month, plus any taxes Spenga is required to pay

  • Due Date:  Upon demand.
  • Payable each month to Spenga’s required supplier.
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