Buying a franchise: who sets the selling prices?

A recognisable brand often comes with a consistent look across its outlets, a standard range of products or services, and shared promotional campaigns. But does that mean the franchisor can dictate how much you charge customers? Before joining a franchise network, check the rules on selling prices, discounts and funding promotions. They directly affect your earnings, and a contractual clause is not necessarily lawful simply because it is presented as a brand standard.

1. Distinguish between recommended, maximum and mandatory prices

Start by requesting the price list, draft agreement, relevant sections of the operations manual and promotional campaign terms. Check how each document describes your freedom to set prices for the end customer.

A recommended price should be a genuine recommendation: the franchisee may follow it but must also be free to depart from it. A maximum price sets a ceiling while allowing sales at a lower price. A fixed or minimum price removes some of that freedom and raises serious competition law concerns.

The label is not decisive. A price list described as recommended can become mandatory in practice if departing from it leads to threats of termination, the withdrawal of benefits or pressure to return the price to the specified level. You should also check any limits on the maximum discount allowed, as these can indirectly set a minimum selling price.

Ask a simple question: “What happens if I sell a product for less than the recommended price?” Request a written answer and compare it with the agreement, campaign rules and point-of-sale system settings.

2. Check the Croatian and EU legal framework

Croatia has no specific franchise law and no dedicated mandatory pre-contractual disclosure regime requiring a standardised document and a prescribed waiting period. A franchise agreement is an innominate contract — one not specifically defined as a contract type in legislation — governed primarily by the Civil Obligations Act. Freedom of contract is not unlimited, however: the agreement must comply with mandatory legal provisions.

The Competition Act is particularly important for agreements on selling prices. Where an agreement may affect trade between EU Member States, Article 101 of the Treaty on the Functioning of the European Union is also relevant. The EU framework also includes Commission Regulation (EU) 2022/720, which provides a block exemption for certain categories of vertical agreements and concerted practices.

Under that Regulation, restricting a buyer’s ability to determine its selling price is, in principle, a hardcore restriction that removes the agreement’s benefit of the block exemption. Recommended and maximum prices may be permitted provided that pressure or incentives do not turn them into fixed or minimum prices. Whether they are permissible nevertheless depends on the agreement as a whole and the market circumstances.

Losing the benefit of the block exemption is not the same as an automatic, definitive ruling on every individual case. If the franchisor claims that a particular network-wide promotion justifies a mandatory price, request a specific legal explanation and an independent review by a lawyer. Brand consistency alone is not a sufficient legal basis.

3. Calculate who really pays for shared discounts

Even where pricing rules are legally acceptable, a campaign may be financially unattractive. Keep the question of legality separate from the question of profitability.

For a typical promotion, prepare a calculation that includes:

• the selling price excluding VAT before and during the promotion;
• the purchase cost of the goods or the direct cost of providing the service;
• sales-related fees, including the franchise fee;
• packaging, delivery and payment processing costs, where applicable;
• the franchisor’s contribution towards funding the discount.

In particular, check whether fees are calculated on actual sales revenue after discounts or on a different basis specified in the agreement. Also ask who bears the cost of vouchers, loyalty programme rewards and discounts advertised on the shared website.

For example, a customer may redeem a voucher issued by the franchisor while you provide the service. Without a clear rule for reimbursing the difference, you may be left bearing the cost of the offer. The agreement should therefore specify how transactions are recorded, what supporting evidence is required and the settlement deadline, rather than merely promising to sort out the figures later.

4. Agree on procedures, not just freedom in principle

A contractual statement that you set your own prices is worth little if the till system prevents changes or the online shop automatically displays a different amount. Before signing, ask for a system demonstration and clarify who controls prices in each sales channel.

Propose that the agreement clearly set out how recommended price lists are supplied, how promotions are announced, how offers are funded and how pricing errors are reported. If participation in a promotion is optional, that should be reflected in the technical settings, not just in correspondence.

For sales to consumers, also check your obligations under Croatia’s Consumer Protection Act, particularly the rules on displaying prices and special sales offers. Dividing responsibilities within the franchise network does not remove the trader’s statutory obligations towards the customer.

Practical takeaway: before signing, obtain written pricing rules, calculate the impact of one actual campaign and check that the sales system allows you to exercise the freedom provided for in the agreement. Have any mandatory pricing arrangements legally reviewed before you accept the contract.