Franchise Promotion Terms in China: Agree Voucher Costs, Subsidies and Discount Sharing Before Signing

When a franchise brand launches money-off vouchers with a minimum spend, member discounts or opening offers, outlets are often expected to participate. But a ‘network-wide promotion’ does not mean ‘paid for by head office’. For investors considering a franchise in China, three questions deserve separate scrutiny before signing: who bears the cost of each offer, who has the authority to decide, and when any promised subsidy will arrive.

1. Review promotional authority and cost allocation separately

Article 11 of mainland China’s Regulations on the Administration of Commercial Franchising requires written franchise agreements to cover key matters including promotions and advertising for products or services. This provides a clear basis for reviewing the contract, but it does not prescribe a standard split of discount costs for every promotion or require the brand to fund all offers.

A clause stating that ‘the franchisee must implement head office’s network-wide marketing policies’ is therefore far from sufficient. It does not explain whether head office can add unlimited promotions, whether the franchisee’s prior consent is needed, or how promised subsidies will be paid.

When signing, separate two questions: which promotional rules must the outlet follow, and which costs must it bear? Accepting coordinated brand advertising should not be taken to mean accepting discount costs of any amount.

Also distinguish advertising charges from price reductions on sales. The former may fund advertising placements; the latter directly reduce the revenue from an order. A marketing fee in the contract does not necessarily include voucher costs. Equally, fee labels alone do not establish that you are being charged twice: ask the brand to explain what each charge funds.

2. Check exactly how vouchers affect outlet revenue

Ask the brand for current promotional rules, sample vouchers and anonymised settlement statements. Do not rely solely on assurances from franchise recruitment staff that ‘head office will provide support’. Check the following points in particular:

• Voucher issuer: Does head office, the outlet or an external platform issue the voucher, and who is responsible for funding its redemption or paying the subsidy?
• Scope of use: Is it valid nationwide? Does it cover new outlets, special outlet formats and low-margin products?
• Combining offers: Can it be used alongside member discounts, platform offers, loyalty points and promotions run independently by the outlet?
• Cost sharing: Does each party contribute a fixed amount or a percentage? Are there caps per order and for the promotion as a whole?
• Order adjustments: How are subsidies already credited recovered or reversed when an order is refunded, partly refunded or cancelled?

Pay particular attention to the distinction between a ‘platform subsidy’ and a ‘merchant discount’. An offer appearing on a platform does not mean the platform funds it. Nor does head office enrolling an outlet in a promotion mean that head office pays for the outlet’s discount.

Ask the brand to take a real promotional order and show, in sequence, the original price, the amount paid by the customer, each party’s subsidy, any relevant deductions and the final amount received by the outlet. Then use the actual product costs to calculate the order’s contribution margin. Do not treat a subsidy receivable as cash already available to pay rent and wages.

3. Set clear limits on participation obligations

Across a franchise network, coordinated promotions can help create a consistent brand experience. Yet outlets face different rents, purchasing costs and delivery conditions. Rather than broadly demanding a right to refuse every promotion, a more practical approach is to set out the limits of participation in a schedule to the contract.

First, list the categories of promotion in which participation is compulsory, and agree how new promotions will be notified, how much advance notice is required and what information must be provided. At a minimum, the notice should specify the promotional period, eligible products, level of discount, expected cost to the outlet and subsidy rules—not merely supply an advertising poster.

Second, agree which changes require the outlet’s written confirmation. Examples include introducing charges not listed in the original contract, increasing the outlet’s share of the costs or extending a promotion funded by the outlet. Both parties must expressly agree this approval mechanism; do not assume that the law automatically gives franchisees a veto over every promotion.

Third, agree cost controls. These might include a promotional budget, a cap on the outlet’s contribution to discounts or exceptions for particular low-margin products. Specify who must stop issuing vouchers once the budget is exhausted and how valid vouchers already issued will be honoured, so that internal disputes over costs are not passed on to customers.

Finally, establish a clear process for exceptions. If there is a system failure, a stock shortage or a local restriction on trading, the outlet should know whom to contact to request a suspension, how quickly it should receive a response and what to do if no response arrives. These arrangements need to be workable in practice.

4. Make subsidy commitments verifiable and enforceable

‘Head office will pay subsidies at the end of the month’ can still leave room for disputes. The contract schedule should specify the party responsible for the subsidy, the calculation formula, the records used to verify voucher redemptions, the reconciliation cycle, the deadline for raising discrepancies and the payment date. If an affiliated company will pay the subsidy, its responsibilities should be clearly set out; naming it on a promotional poster is not enough.

Also confirm whether the subsidy will be paid in cash, offset against payments for goods or credited to an account within the brand’s system. These have different effects on cash flow. If an offset is used, specify which charges it can cover, any restrictions and what happens to unused credit. Otherwise, a subsidy may exist on paper without being available to meet essential expenses.

Article 21 of the Regulations on the Administration of Commercial Franchising requires the franchisor to provide the prescribed information and the contract text in writing at least 30 days before signing. Where promotional rules concern franchise fees, supply terms or support arrangements, ask for them to be consistent with the disclosure documents and the contract. Not every future promotion has to be settled in advance, but known rules on who bears the costs should not rest on verbal explanations alone.

After opening, retain promotional notices, participation confirmations, versions of system rules, voucher redemption records and settlement statements. If a subsidy is underpaid, first raise a written objection through the agreed process. Do not withhold other amounts due without first reviewing your position, as this could trigger a separate dispute over breach of contract.

Practical takeaway: Before signing, ask the brand to use one current promotion and one settlement statement to explain ‘who decides, who pays and when the money arrives’. Then record participation limits, cost caps and subsidy responsibilities in a contract schedule. This will help you judge whether promotions will generate sustainable revenue or simply add pressure to your cash flow.