Franchise fees in Croatia: how to set them sustainably

When turning an existing business into a franchise network, you should not set fees simply by copying someone else’s price list. Fees must cover clearly defined franchisor obligations, leave franchisees room to run a sustainable business and be straightforward to calculate. This guide explains how to bring together support costs, unit economics and contractual terms before putting together an offer for your first franchisees.

1. First, calculate what you actually deliver

Separate the costs of preparing the franchise network as a whole from those of onboarding each franchisee. Concept development, legal preparation and the creation of shared tools are long-term investments for the franchisor. Training a new team, helping with preparations for opening and making initial site visits are costs associated with onboarding an individual franchisee.

For each activity, record who is responsible, the number of working hours required, the direct costs and when it will be delivered. Include the owner’s time too: support is not free simply because you currently provide it yourself.

Divide your cost breakdown into three categories:

• Franchisee onboarding: initial training, location assessment and launch support.
• Ongoing support: advice, monitoring compliance with standards, further training and maintenance of shared tools.
• Joint activities: advertising, product photography or campaign development for the franchise network.

For each item, state whether it is included in the fee, charged separately or arranged directly between the franchisee and a supplier. This helps prevent the same service being charged for twice, or promised support being left without funding.

2. Separate the initial fee from ongoing payments

The initial fee may cover access to the concept, agreed rights to use it and initial support. It is not the same as the total investment required to open. Premises fit-out, equipment, stock, the rental deposit and working capital must be shown separately.

The ongoing fee funds the continuing relationship. It may be fixed, linked to turnover or a combination of the two. There is no universally correct percentage: the choice depends on the outlet’s margins, the scope of support and the reliability of reporting.

A fixed fee makes planning easier for the franchisor, but can place a heavy burden on an outlet with lower sales. A turnover-based fee adjusts to the scale of the business, but requires a precisely defined calculation basis and verifiable data. A minimum fee can safeguard funding for basic support, but increases the burden on franchisees during their early months or quieter seasons.

Set out the contribution towards joint advertising separately. Define how the funds may be used, how decisions will be made and reported, and how this relates to local advertising paid for by the franchisee. Do not promise equal local benefits from every joint campaign unless you can deliver them.

3. Check whether the fees work for both parties

Build a monthly profit and loss model for the outlet after all proposed fees. Include purchasing costs, labour, rent, utilities, maintenance, insurance and other actual costs. If the owner works in the outlet, allow for appropriate pay for their work: otherwise, the model may show a profit that is effectively a substitute for a salary.

Prepare a separate cash flow forecast covering loan repayments, tax payments, capital expenditure and the necessary cash reserve. A profit on paper does not mean the outlet can meet its obligations on time.

Test at least a base case, a downside case and a seasonal scenario. Vary assumptions about sales, labour costs and purchase prices, rather than just the franchise fee. Base your assumptions on your own records, adjusted to reflect conditions at the proposed location.

Then assess the franchisor’s position too: will ongoing fees cover the promised support when the network has only a few franchisees? If maintaining the system depends on a constant flow of initial fees, the model is vulnerable. The answer may be to change the scope of support, expand more slowly or secure additional capital, rather than automatically increasing fees.

4. Turn the fee schedule into clear contractual terms

Croatia has no dedicated law comprehensively regulating franchising. A franchise agreement is an innominate contract, meaning it is not a specifically defined contract type, and is subject to the general provisions of the Civil Obligations Act. There is also no general requirement to register a franchise agreement in a dedicated franchise register, nor a single, legally prescribed franchise pre-contractual disclosure document.

This does not mean fees can be structured without restrictions. The Competition Act and applicable European Union rules on vertical agreements are also relevant. Pay particular attention to provisions linking fees to mandatory purchasing or selling prices. Tax treatment must be checked against tax legislation, including the Value Added Tax Act.

The agreement should provide unambiguous answers to the following questions:

• Is the fee calculated on turnover excluding VAT, and how are returns, discounts and gift vouchers treated?
• How are online sales or sales through delivery platforms allocated?
• When must fees be calculated, and when is payment due?
• Which reports must the franchisee submit, and how are they verified?
• When can fees be changed, and under what predefined procedure?
• What happens to the initial fee if the outlet does not open?

5. Align the offer, the agreement and the support actually delivered

Before making your first offer, compare the fee schedule, financial model and draft agreement. Each fee must have the same calculation basis, payment deadline and description across all documents. Clearly highlight additional costs such as travel, repeat training or separate software licences.

Practical takeaway: your fees are ready only when you can demonstrate what they fund, how they are calculated and why they leave both parties room to operate sustainably. Have a lawyer and an accountant carry out a final review before entering into an agreement.