Buying a franchise: protecting your freedom to set prices

Joining a franchise network gives you access to a brand and proven business methods. It does not mean giving up all control over your prices. Before buying a franchise, examine how prices are set, communicated and applied: these arrangements directly affect your margins and your ability to tailor your offering to local customers.

1. Distinguish between recommended, maximum and imposed prices

In France, a franchisee is an independent trader who runs their business at their own risk. For the resale of products, the franchisor may recommend prices or set maximum prices, provided that pressure or incentives do not turn them into fixed or minimum resale prices.

A price described as ‘recommended’ is therefore not genuinely optional if franchisees who depart from it face penalties, threats or the withdrawal of benefits. Conversely, distributing a catalogue of indicative prices does not, in itself, establish an unlawful practice.

The legal framework includes Article L. 420-1 of the French Commercial Code and, where its conditions of application are met, Article 101 of the Treaty on the Functioning of the European Union. EU Regulation 2022/720 on vertical agreements treats the imposition of fixed or minimum resale prices as a hardcore restriction, removing the benefit of the block exemption.

Do not, however, conclude on your own that a clause is invalid: its legal classification depends on how the arrangements work in practice and all the surrounding circumstances. Have any restrictive pricing mechanism reviewed by a lawyer with expertise in competition law.

2. Check whether the network’s systems give you genuine freedom

Reading the contract is not enough. Freedom granted on paper may be difficult to exercise if the business systems do not allow you to change prices.

Ask for a demonstration of the till software and ordering system. Prepare some specific questions:

• Can you change the price of a product or service yourself?
• Do you need the franchisor’s prior approval?
• Do central updates overwrite your changes?
• Who sets the prices displayed on the website and delivery platforms?
• Who bears the cost of discrepancies between the displayed price and the price charged?

For online sales, first establish who is legally selling to the customer. The analysis differs depending on whether your business makes the sale or plays a role in a sale made by another entity.

Ask for written confirmation of the settings you can change and any limitations. Then compare that response with the contract, its schedules and the operating procedures available before you commit. A verbal promise of flexibility does not resolve conflicting documents.

3. Assess the cost of network-wide promotions

A national campaign can attract customers while significantly reducing your margin. Before committing, ask for the rules governing discounts, vouchers, loyalty schemes and bundle offers.

For each scheme, establish who decides on the offer, who funds the benefit and how your business is reimbursed, if applicable. Also check the terms of participation and how participating outlets are identified to consumers.

Work with your accountant to model the impact using your own costs. Start with the price actually received, excluding VAT, then deduct purchasing costs, any commissions, contractual contributions and other variable costs. This gives you a contribution margin to compare against your fixed costs.

Do not focus solely on increased turnover. A promotion can boost sales without improving profit. Also test a scenario in which existing customers take advantage of the discount without any new customers coming in.

4. Clarify the rules before making any commitment

France has no single code governing every aspect of franchising. General contract law and competition law apply, alongside specific pre-contractual disclosure requirements.

Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law, applies where a business makes a trade name, trade mark or trading identity available while requiring exclusivity or near-exclusivity for the activity. In these circumstances, the pre-contractual disclosure document, known as the DIP, and the draft contract must be supplied at least twenty days before signing or making any advance payment. Article R. 330-1 specifies the information required.

Use this time to clarify the pricing clauses, but do not treat the DIP as a guarantee of profitability. Ask for important commitments to be included in the contractual documents: how recommended prices work, access to pricing settings and the funding of promotions.

Key takeaway: before signing, check the written rules, how the systems work and the impact on your margins together. Your freedom to set prices must be clear, usable in practice and compatible with a viable business model.