Legal Question in Business Law in Illinois

Assuming that such terms as "gross revenue" and "net revenue" are not defined in the contract, generally the term "net revenue" in such contracts applicable to retail sales of merchandise or services is defined as the net revenue received by the seller, i.e, gross revenue received less shipping costs, sales tax, and similar costs which reduce the amount of revenue received. Net revenue would not typically include the deduction of royalties, cost of manufacture, inventory costs, etc. Of course, such questions should be asked prior to signing a contract.

As a Franchise Attorney I can add the following. the definition of net revenue is not so clear due to the ambiguous ways in which it is used. In retail businesses, the income generated through sales, minus all the commissions, sales tax, shipping costs and refunds that it pays, is normally called net revenue. From the above, "commissions" can be the big expense and in theory, can zero out net revenue. It's up to the licensor in this case to carefully define the term "net revenue" or ordinary definitions will be applied and any ambiguity is construed against it. Such as what happens if commissions start to zero out net revenue. Consult with a good business or franchise attorney in your area for specific advice.

Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.

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