Buying a franchise: how to negotiate minimum turnover requirements

A sales target in a brand presentation is not the same as a contractual obligation to achieve a minimum turnover. The first may be a business ambition; the second may trigger additional payments, the loss of certain rights or termination. Before joining a franchise network, check exactly what is expected of you, how performance is measured and who bears the risk of circumstances beyond your control.

Distinguish a sales plan from a contractual obligation

Look through the draft agreement for terms such as “minimum turnover”, “required sales performance”, “annual target” and “minimum performance”. Also review the schedules and the operations manual if the agreement refers to them. A significant obligation may be hidden behind an apparently non-binding business plan.

Ask the franchisor for written answers to three questions:

• Is the stated performance level a recommendation or a binding condition of the franchise relationship?
• What exactly happens if you fail to achieve it?
• Can the franchisor unilaterally increase the target during the relationship?

Minimum turnover is not the same as a minimum franchise fee. The former sets the expected sales performance; the latter sets an amount you may have to pay even when sales are weak. An agreement may contain both, so missing a target can make trading more difficult while also increasing fees as a proportion of sales.

Do not accept a verbal explanation that a clause “is not enforced in practice”. If the franchisor regards the target as guidance only, ask for the agreement to say so clearly. If it is an obligation, the consequences must be sufficiently specific for you to factor them into your risk assessment.

Check how the target is calculated and whether it is achievable

The term “turnover” is not precise enough on its own. The agreement should clarify how it treats VAT, returns, cancelled orders, discounts, sales through delivery platforms and online orders attributed to your outlet. It should also specify which data source is authoritative and how errors in the records are corrected.

Next, compare the target with the capacity of the particular outlet. A useful starting calculation is the potential number of transactions per day multiplied by the average transaction value and the number of trading days. Test the result against opening hours, staffing levels, equipment availability and local demand. This does not guarantee sales; it checks whether the target makes operational sense.

Ask which comparable locations were used to establish the target. An outlet in a tourist destination, a shopping centre or a small town will not necessarily follow the same sales pattern. In particular, check whether the target reflects an established business or the initial period when customers are still getting to know the offering.

For a seasonal location, an annual target may make more sense than equal monthly thresholds. However, annual measurement does not resolve everything: the agreement must specify how an incomplete first year is calculated and whether the measurement period begins when the agreement is signed or when the outlet actually opens.

Agree adjustments and proportionate consequences

Rather than accepting a single fixed figure, propose a predefined adjustment mechanism. For example, targets could rise gradually during the initial period, while later changes could require both parties’ written consent. Avoid wording that allows the franchisor to set new thresholds without criteria or limits.

Address events that disrupt sales separately: late delivery of mandatory equipment, a prolonged IT outage, shortages of key products or a compulsory closure of the outlet. Not every such event automatically qualifies as force majeure. It is therefore useful to agree expressly when the target will be reduced proportionately, when measurement will be suspended and what evidence is needed to substantiate the circumstances.

The consequences should also be clear and proportionate. Distinguish a one-off shortfall from repeated failure to meet the target. Before more serious consequences apply, you could propose a joint review of the causes and a written improvement plan setting out specific obligations for both parties.

Check whether consequences can be applied cumulatively. An additional fee, the loss of a particular right and termination for the same shortfall present a different risk from a single measure agreed in advance. Your financial assessment should cover the effects of weaker sales, not just the amount of the contractual fee.

What Croatia’s legal framework means for your rights

Croatia has no dedicated law comprehensively regulating franchise agreements, nor a general franchise-specific requirement to provide a standardised disclosure document before signing. There is also no general compulsory register of franchise offers that would validate sales targets.

The Croatian Obligations Act (Zakon o obveznim odnosima) is particularly important to the contractual relationship, including its principles of good faith and fair dealing and its rules on performance of obligations, liability and termination. Freedom of contract is not unlimited. Depending on the nature of the relationship, the Croatian Competition Act and relevant European Union competition rules also apply.

The European Code of Ethics for Franchising provides a framework for good practice; it is not Croatian law. Check its relevance by examining the franchisor’s association membership, commitments and contractual provisions. Do not assume that the code itself invalidates an unfavourable sales threshold.

Practical takeaway: before signing, ask for a single, clear table setting out the definition of turnover, the measurement period, the adjustment mechanism and all consequences of falling short. Give it to a lawyer and an accountant to review alongside the agreement. If you cannot clearly calculate the obligation, you are not yet ready to accept the risk it carries.