Memberships, class packs and gift cards: how to book them
Updated 16 October 2026
The short answer
Money a customer pays before the service is delivered is owed to that customer until the service happens. In the books it sits on the balance sheet as deferred revenue, and it moves to the profit and loss as the customer uses it. A ten-class pack sold for $200 is $200 of classes you owe. It becomes revenue $20 at a time, class by class.
Studios that book every pack and gift card as sales on the day of purchase show a high month when they sell and a low month when customers come in to use what they bought. The cash is the same either way. The profit and loss tells a different story, and so does the royalty report if it is built from the same number.
Why it matters
- Royalties. Royalties are a percentage of gross sales as your franchise agreement defines it. If the books count prepaid sales one way and the agreement another, the royalty you pay will not match what the franchisor expects.
- Decisions. A month that looks good because of pack sales can hide a drop in visits. Deferred revenue shows how much service you still owe.
- Lenders and buyers. A lender or buyer will ask how much deferred revenue sits on the balance sheet, because it is service you must deliver without new cash coming in.
- Taxes. A CPA decides how prepaid revenue is treated on the return. Clean records of what was sold and what was used make that decision simple.
Monthly memberships
A membership billed on the first of the month for that month is revenue in that month. If members are billed on the day they joined, part of each charge covers days in the following month. Most small studios still record the full charge when it is billed, which is fine when billing is spread evenly. Pick one method and use it every month.
- Record declined payments in their own account, so the membership report and the revenue line agree.
- Track freezes as a count, with no charge. A rise in freezes shows up before a fall in revenue.
- Record cancellation fees as their own revenue line.
- Annual memberships paid upfront are spread over twelve months. A $1,200 annual membership paid in January is $100 of revenue each month.
Class packs: a worked example
A studio sells 20 ten-class packs in September at $200 each, so $4,000 comes in and each class is worth $20. Members use 60 classes in September, 90 in October and 40 in November. The 10 classes left expire at the end of December under the studio’s posted policy.
| Month | Sold | Classes used | Earned | Owed at month end |
|---|---|---|---|---|
| September | $4,000 | 60 | $1,200 | $2,800 |
| October | 90 | $1,800 | $1,000 | |
| November | 40 | $800 | $200 | |
| December | 10 expire | $200 | $0 |
The entries are short. On the sale, cash goes up and deferred revenue goes up by $4,000. Each month, deferred revenue goes down and revenue goes up by the classes used, taken from the usage report in your scheduling system. Discounted introductory packs work the same way, at the discounted price per class.
Gift cards: a worked example
A location sells $5,000 of gift cards in December. Customers redeem $1,000 in December, $2,000 in January and $1,000 in February. At the end of February, $1,000 is still unredeemed.
| Month | Sold | Redeemed | Still owed |
|---|---|---|---|
| December | $5,000 | $1,000 | $4,000 |
| January | $2,000 | $2,000 | |
| February | $1,000 | $1,000 |
- The sale is a liability. Revenue is recorded when the card is redeemed for a service or product.
- Unredeemed balances may fall under state unclaimed property rules. Some states require them to be reported after a period of inactivity, and others exempt gift cards. Keep the balance by card and by date sold.
- Many franchise systems run gift cards centrally, so a card sold at one location can be redeemed at another. The franchisor then settles the difference between locations. Record those settlements in their own account so they do not get mixed into sales.
What it does to royalties
Franchise agreements define when a prepaid sale counts as gross sales. Some count it when the pack or card is sold. Others count it when it is used. Read the definition in your agreement, then set up the gross sales report to follow it. Each month, set the gross sales figure on the franchisor’s statement beside the books and explain any difference. A difference that repeats every month usually means prepaid sales are being counted twice or not at all.
The month-end checklist
- Pull the usage report and move earned packs from deferred revenue to revenue.
- Tie the deferred revenue balance to the open packs in your scheduling system.
- Tie the gift card liability to the gift card report, and record redemptions and settlements.
- Record expired packs under your posted policy and state rules.
- Reconcile gross sales to the franchisor’s royalty statement.
Tax treatment, sales tax and unclaimed property rules vary by state. Confirm them with a CPA before you change how you file.
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Questions
Do I pay royalties on a class pack when it is sold or when it is used?
It depends on how your franchise agreement defines gross sales. Read that definition, and set up the books to report on the same basis.
Is a membership freeze lost revenue?
It is a month with no charge. Track freezes as a count so you can see membership numbers and revenue move together.
What happens to class packs that are never used?
Under a posted expiration policy, unused classes are recorded as revenue when they expire. State rules can affect this, so confirm the treatment with a CPA.