Initial franchise fees: how to set them in Argentina

When franchising an existing business, the initial franchise fee should not simply be copied from what another brand charges. It is a payment that needs an economic justification and a clearly defined contractual scope. Setting out what it covers, when it is payable and what happens if the opening does not go ahead helps build transparent relationships across the franchise network.

What the initial franchise fee covers and what the law requires

In Argentina, franchise agreements are governed by Articles 1512 to 1524 of the national Civil and Commercial Code. Article 1512 provides for direct or indirect payment by the franchisee in return for access to a proven system, supported by technical know-how and ongoing assistance.

The legislation does not set a mandatory amount or percentage for the initial franchise fee. Nor does it require every payment to carry that name or to be paid in full when the agreement is signed. The payment structure must be agreed and accurately reflected in the contract.

The fee may cover access to the system and know-how, as well as certain initial services. However, it should not be confused with buying the brand or receiving a guarantee of profitability. The franchisee obtains the agreed rights of use, not ownership of the intellectual property.

Distinguish the initial franchise fee from ongoing royalties, equipment, stock and other expenditure. This separation makes the cost of joining clear and avoids presenting the fee as though it were the entire investment required.

Build the fee around clearly identifiable services and rights

Before choosing a figure, prepare an internal worksheet listing the tasks needed to bring a new franchise unit into the network. Record who performs each task, how many hours it requires and what external expenses it involves.

You can organise this work into three groups:

• Initial knowledge transfer: preparing materials, providing access to tools and delivering the training included in the fee.
• Onboarding support: meetings, reviews of operating arrangements and any pre-opening assistance you actually offer.
• Access to the established system: the value of proven know-how and the rights granted, kept separate from the cost of future support.

Costs help justify the amount, but they are not a statutory formula and do not determine the price on their own. The value the franchisee receives and the business's realistic ability to afford the payment also matter.

Do not try to recover your entire historical development investment from the first franchisee. Equally, do not set an artificially low fee if you then need to charge for essential services that were never explained. Both approaches can distort the proposition.

Test the amount against cautious forecasts for franchisee recruitment. If initial support involves travel or substantial staff time, check that you can deliver it even if fewer franchisees join than expected.

Define what is included, what is excluded and when payments are due

Turn the internal worksheet into a clear contractual description. Simply writing “includes training and opening support” is not enough: specify who can attend, the format, duration or scope, and who pays for travel and accommodation where relevant.

For each component, define the following:

• Which services are included and which are charged separately.
• When each payment becomes due.
• What invoice or other supporting document must be issued.
• Whether the quoted amount includes applicable taxes.
• The agreed currency and payment method.

Payments can be linked to milestones, provided these are objective. Examples include signing the agreement, starting training and delivering specified materials. Avoid conditions that depend solely on the discretion of the party receiving payment.

If you use instalments, foreign currency or mechanisms for adjusting the amount, seek legal and accounting advice on how to put them into effect. Do not use automatic adjustment formulas without checking their validity and tax implications.

Also keep the commercial offer consistent with the contract: a service presented as included should not later become an unavoidable extra charge.

Agree what happens if the process stops

Do not treat the phrase “non-refundable fee” as a universal solution. How the money is handled should take account of why the process stopped, which services have been delivered and each party's responsibilities.

Distinguish between a prospective franchisee withdrawing, a breach by the franchisor and an inability to proceed because a previously agreed condition has not been met. Agree how completed work will be documented and how any refund or outstanding balance will be calculated. The clause needs professional review; its heading does not guarantee its validity.

Keep any reservation payment separate from the final franchise fee, and explain whether it will be credited towards that fee. This helps avoid duplicate charges or conflicting expectations.

Practical takeaway: before offering your franchise, prepare a fee summary setting out the amount, its rationale, what is included, payment deadlines and refund rules. Have it reviewed by legal and accounting advisers, and use the same information throughout the negotiations.