Franchising in Denmark: How to Set Franchise Fees

When you turn your existing business into a franchise network, fees are more than a price for using the name. They need to fund training, ongoing support and development without putting unreasonable financial pressure on franchisees. So start with the services you will provide and the economics of running the business—not a percentage you have seen others charge.

1. Calculate what you actually need to deliver

First, draw up a list of the services you will undertake to provide as the franchisor. Distinguish between tasks needed at launch and those that continue throughout the relationship.

At launch, these may include an introduction to the concept, training, help with fitting out the premises, system set-up and support during the first few days of trading. During ongoing operations, they may include advice, quality assurance, updates to the operations manual, group purchasing arrangements and further training.

For each service, describe:

• Exactly what the franchisee receives.
• How often the service is delivered, and by whom.
• The time involved and any external costs.
• Whether the cost varies with the number of units or is shared across the network.

Include your own time, too. In an existing business, the owner often handles training and problem-solving without a separate budget allocation. That approach becomes vulnerable when several independent franchisees need help at the same time.

Do not spread all shared costs across an optimistic estimate of future unit numbers. Also calculate whether you can deliver the promised support while the franchise network is still small.

2. Give each fee a clear purpose

A simple fee structure is easier to explain, administer and monitor. Consider which payments are genuinely necessary rather than automatically introducing every common type of fee.

The initial franchise fee can cover access to the concept and agreed start-up services. Explain what the amount includes, when it falls due and what happens if the opening is delayed or abandoned. Equipment, stock and fitting out the premises should not appear to be included if the franchisee pays for them separately.

The ongoing franchise fee can be a fixed amount, a percentage of turnover or a combination of the two. A fixed amount offers predictability but places a proportionately greater burden on a business with low turnover. A percentage of turnover tracks sales, but not necessarily the franchisee’s profit.

A marketing contribution should have a clearly defined scope. Agree which shared activities it funds, how its use will be reported and whether the franchisee must also fund local marketing.

Also disclose any income you earn from compulsory product purchases, systems or supplier agreements. The overall financial burden matters more than the size of the fee at the top of the price list.

3. Check the finances on both sides

Prepare two linked budgets: one for the franchisor’s support function and one for an independently owned franchise unit. Use documented experience from your existing business, but adapt it to the new ownership structure.

The franchisee’s budget needs to include, among other things, cost of goods sold, wages, rent, insurance, financing, local marketing costs and all payments to you. Allow reasonable remuneration for the franchisee’s own work as well. A profit that exists only because the owner works for free is a poor basis for a decision.

Next, test the effects of lower sales, higher staffing costs and a longer start-up period. Examine both profitability and cash flow month by month. A fee may be affordable over the year but cause payment difficulties if it falls due before revenue comes in.

If the model does not add up, a lower fee is not necessarily the answer. You may also need to simplify the support offered, change the concept’s cost structure or postpone recruitment. Fees cannot fix an underlying business model that is not financially viable.

4. Set out calculations and changes in the agreement

Avoid wording such as “a percentage of turnover” without further definition. The agreement should specify the calculation basis, including the treatment of VAT, discounts, returns, gift cards and sales through digital platforms.

Also set reporting and payment deadlines, along with reasonable rights to verify the information supplied. Use the same definitions in the franchise agreement, accounting system and budget model.

Denmark has no dedicated franchise law, no franchise-specific registration scheme and no specific statutory requirement for a pre-contract disclosure document. General business registration requirements still apply. The Danish Contracts Act and general principles of contract law govern franchise agreements, including rules on unfair contract terms. General duties of good faith and disclosure may also be relevant before signing.

There are no specific statutory franchise fee rates or caps. However, freedom of contract must be exercised within the framework of, among other legislation, the Danish Competition Act, Marketing Practices Act and Interest Act, as well as relevant EU competition rules. Franchise codes of ethics are not Danish law, but may create obligations through membership or agreement.

Ask a legal adviser to review the fee terms and an accountant to clarify the VAT treatment. If fees can be changed, the basis, method and notice period should be clearly stated. Avoid a vaguely worded right to introduce new charges at your own discretion.

Practical takeaway: Create a single fee schedule showing each service, the calculation basis, payment due dates and terms for changes. Then check that both franchisor and franchisee can run a sustainable business with those payments in place.