Setting Franchise Fees in Egypt: A Guide for Business Owners

Setting franchise fees is not about choosing a percentage that looks reasonable or copying a well-known brand. If you are turning an existing business in Egypt into a franchise network, you need to price commitments you can deliver while leaving franchisees enough financial headroom to stay in business. Start by separating the costs of joining the network from those of ongoing support, then test the impact of each fee on both parties before including it in the agreement.

1. Base the initial franchise fee on specific services

First, list what the franchisee will receive before opening: site assessment, design review, initial training, recruitment assistance and the set-up of monitoring systems. For each service, record the working hours required, travel costs, third-party fees and who pays for each item.

Do not confuse these services with the cost of fitting out and opening the outlet. Equipment, stock, the rental deposit and working capital are separate requirements, even if you purchase some of them on the franchisee’s behalf. Keeping them separate avoids presenting an apparently low fee and then adding unclear obligations during implementation.

The initial fee can also reflect the value of using the brand and its accumulated know-how, but it should not become a way to fund support promises whose costs have not been calculated. Ask yourself: if expansion is delayed, can I meet my commitments to the first franchisee without relying on fees from the next one?

Also specify when the fee becomes due, whether it is payable in instalments and what happens if the site is rejected or the opening cannot go ahead. Avoid describing any payment as ‘non-refundable’ without a legal review and a clear link to the agreed services and rights.

2. Choose a clear basis for ongoing fees

Ongoing fees fund the continuing relationship, including monitoring visits, further training, product development and systems support. Calculate these costs using your team’s actual capacity and the number of outlets it can support, rather than relying solely on an optimistic expansion plan.

You can agree on a fixed amount, a percentage of sales or a combination of the two. A fixed amount makes payments easier to forecast but may put pressure on the outlet in quieter months. A percentage varies with sales, but requires a precise accounting definition and a workable verification process.

Before choosing a formula, resolve the following questions:

• Are sales calculated inclusive or exclusive of VAT?
• How are returns, discounts and complimentary vouchers treated?
• Are delivery-app orders included at the amount collected from the customer or at the net amount transferred after commission?
• When are sales from prepaid orders recognised, and how is double counting prevented?

Do not rely on the phrase ‘total revenue’ alone. Attach a worked example showing how the point-of-sale report translates into the fee payable, and ask the other party’s accountant to apply it. If the results differ, the definition needs revising.

3. Separate marketing and purchasing charges from support fees

If you decide to collect a marketing contribution, define its purpose: joint campaigns, content production or management of digital channels. Explain whether local marketing for the outlet is an additional obligation, who approves spending and how the franchisee receives a summary of how the money has been used.

Do not present the marketing contribution as a guarantee of a particular number of customers or level of sales. It is better to specify activities that can be monitored, while explaining how unused funds and any campaign management expenses will be handled.

Disclose any other charges too, such as software subscriptions, franchise renewal, ownership transfers and additional training. If you earn a margin on products supplied or receive supplier incentives, explain the arrangement transparently. When assessing the financial burden on an outlet, consider fees, supply margins and mandatory costs together, rather than looking at the ongoing percentage fee in isolation.

4. Test the viability of both the outlet and the franchisor

Build a monthly cash-flow model for the franchisee, starting with sales and deducting the cost of goods, wages, rent, utilities, delivery, marketing and fees. Include taxes and financing costs as applicable, and allow a realistic amount for managing the outlet, even if the owner will run it personally.

Test three scenarios: expected trading, weaker sales and higher costs. These are not guaranteed profit forecasts, but stress tests that reveal how resilient the business is. Monitor the cash remaining, not just accounting profit: an outlet may appear profitable yet be unable to pay for its purchases.

Then test your own figures as the franchisor: does recurring income cover the support you have promised? If the model is only viable with fees that outlets cannot afford, review the support model, supply terms or operating costs before recruiting franchisees.

5. Turn your pricing into an enforceable contractual schedule

Egypt has no standalone franchise law and no general mandatory disclosure regime specifically for franchising. However, franchise networks are subject to general legislation, including Civil Code Law No. 131 of 1948 and Commercial Law No. 17 of 1999. Technology transfer provisions may apply depending on the substance of the relationship and whether the relevant conditions are met, rather than simply on what the agreement is called.

Trade mark licensing is governed by Intellectual Property Rights Protection Law No. 82 of 2002. Supply, exclusivity and pricing terms also require review under the Protection of Competition and Prohibition of Monopolistic Practices Law No. 3 of 2005. Setting your fees does not mean you are free to impose resale prices without legal scrutiny.

Bring all fees together in a schedule specifying the basis of calculation, payment dates, taxes, invoicing, and the process for reconciling figures and raising objections. Define any future adjustments using clear criteria and an agreed notice procedure, and have a lawyer and an accountant review the documents before signing.

Practical takeaway: Do not announce franchise fees until you have prepared a service list, a financial model for both parties and an understandable fee calculation schedule. A well-designed fee funds genuine support while leaving the franchisee a chance to build a sustainable business.