Buying a franchise: protect your right to set prices

A consistent customer experience across a franchise network may include shared pricing recommendations and promotions. Even so, prospective buyers should establish where the franchisor’s control ends and an independent franchisee’s pricing discretion begins. Selling prices directly affect your ability to cover local costs. A clause describing you as an independent business owner is not enough if the till system, promotional terms or operating instructions prevent you from changing prices.

1. Distinguish a recommended price from a binding instruction

Finland has no specific franchising act or compulsory registration system for franchise agreements. The legislation governing the contractual relationship includes the Finnish Contracts Act, the Unfair Business Practices Act and the Competition Act. For pricing, the key rules are the Competition Act and, where an arrangement may affect trade between Member States, EU competition rules.

In resale arrangements between independent businesses, imposing a fixed or minimum selling price is generally a prohibited restriction of competition. A franchisor can usually recommend prices or set maximum prices, provided that pressure or incentives do not effectively turn them into fixed or minimum prices. Whether these arrangements are permissible also depends on the overall circumstances.

A recommendation means that the franchisee genuinely has the freedom to depart from the suggested price. A maximum price sets an upper limit but leaves the franchisee free to sell for less. If departing from a recommended price leads to the loss of support, a warning or difficulties obtaining supplies, for example, it may not be a genuine recommendation.

A shared franchise brand does not, in itself, justify binding resale prices. Any exceptions require a case-by-case legal assessment. Do not accept the mere fact that every outlet has always used the same price list as sufficient justification.

The Finnish Franchising Association’s Code of Ethics is a form of self-regulation, not legislation. A commitment to follow it through membership does not replace compliance with competition law.

2. Check how pricing works in practice, not just in the agreement

Before buying, ask to see the pricing guidelines, promotional guidelines and details of access permissions for the till system, as well as the agreement itself. The aim is not to collect every possible document, but to establish one thing: how your selling prices are determined and who can change them.

Ask the franchisor to demonstrate how to change the price of an individual product or service. At the same time, check whether the new price appears at the till, in the online booking system, in the online shop and across other sales channels. If only the franchisor’s system administrator can make the change, ask in writing what criteria apply to requests and how quickly they are processed.

Cover at least the following questions:

• Can I charge less or more than the recommended price without separate approval?
• Which prices are recommendations, and which, if any, are maximum prices?
• Can I offer local discounts or price service packages myself?
• Does departing from a price lead to charges, loss of benefits or other consequences?
• Who is the customer contracting with in each sales channel?

The last question matters: sales made by the franchisor in its own name are not the same as sales made by the franchisee. A genuine agency relationship may also be assessed differently under competition law from independent resale. The title of the agreement is not decisive; what matters is how the business actually operates and how risks are allocated.

Speak to existing franchisees too. Ask specifically when they last changed a price and what happened as a result. Compare their answers with the written terms, but do not treat an individual experience as a definitive legal assessment.

3. Establish how promotions affect your margin

Pricing freedom and financial responsibility for a promotion are separate issues. Even if the franchisor only recommends a discount, your business may have to bear its full cost. Conversely, promotional support paid by the franchisor may significantly change the calculation.

Ask for an example showing how payments are settled for a typical network-wide promotion. Establish who funds the discount, how any reimbursement from the franchisor is calculated and when it is paid. Also check whether turnover-based franchise fees are calculated on the price actually received from the customer or on some other basis specified in the agreement.

Use your own costs to compare the standard price with the promotional price. Use comparable sales and cost figures, excluding VAT. Deduct at least the cost of purchasing the product or providing the service, variable charges associated with the sale and any commission charged by the sales or delivery channel. Also assess whether the promotion requires additional staff hours.

Do not assume that higher sales volumes will automatically make up for a low margin. If each additional sale generates too little relative to the costs it creates, the promotion may weaken your cash position. Model a scenario in which sales increase but you also need more staff.

Check how gift cards, loyalty benefits and credits issued by the franchisor affect the payment you receive. The value of the benefit promised to the customer may not match the amount paid to the franchisee.

4. Record the limits of pricing authority before signing

Ask for the agreement to state clearly who decides the prices charged on the franchisee’s own sales. Recommended prices, any maximum prices and the conditions for participating in promotions must be distinguished from one another. You should also agree who funds discounts and how price changes are implemented in practice.

Check that schedules to the agreement or provisions in the operating manual do not override the decision-making authority promised in the main agreement. If the sales pitch emphasises pricing freedom but the system only allows the franchisor’s price list, resolve that contradiction before committing. A verbal promise to fix the system later leaves a significant risk unresolved.

If the terms contain a minimum price, a mandatory fixed price or a penalty for departing from a price, seek an assessment from a lawyer with competition law expertise. Do not assume that your signature makes a problematic term permissible, or that you can safely disregard it on your own initiative later.

Practical takeaway: before buying a franchise, confirm three things: your right to set prices, your ability to implement those decisions in the systems, and your responsibility for the cost of discounts. Your pricing authority must exist both in the agreement and in day-to-day practice.