Franchising your business: setting ongoing fees

Turning an existing business into a franchise means funding a lasting relationship, not just bringing the first partners on board. Ongoing fees must support the franchisor’s commitments while keeping franchisees financially viable. Building a strong franchise network therefore calls for a methodical approach to setting fees: start with the services provided, compare different charging models and test their effects before putting them into the contract.

1. Define exactly what the fee pays for

The ongoing franchise fee is paid in return for the rights and services set out in the contract: use of the brand and trading name, continuing support and, depending on the commitments made, other recurring services. It is separate from the initial franchise fee, which generally covers elements associated with joining the network.

Before setting an amount, list your recurring commitments: support for franchise operators, network-wide activities, updates to tools and systems, and technical or commercial assistance. For each, specify how often it will be provided, who is responsible and what resources are needed.

Then distinguish between three categories:

• Included services, covered by the standard ongoing fee.
• Optional services, ordered and invoiced separately under terms disclosed in advance.
• Separate contributions, such as payments towards joint advertising campaigns.

This distinction avoids presenting an attractive headline fee only to add essential expenses later. It also reduces misunderstandings about what franchisees can request without incurring extra charges.

Finally, calculate the cost of these commitments. Separate costs shared across the network from those that increase with each additional outlet. You cannot set a fee simply by copying another franchise brand, whose services and operating structure may differ.

2. Compare charging models across different operating scenarios

The fee and the way it is calculated can be freely agreed in the contract, subject to applicable law. Options include a fixed amount or a fee calculated as a percentage of turnover.

A fixed fee makes budgeting more straightforward. However, it places a proportionately greater burden on an outlet whose sales are slow to build. You therefore need to test its impact during the start-up phase, not just once an outlet is well established.

A turnover-based fee varies with trading activity. It may accommodate fluctuations in sales more effectively, but turnover alone does not measure profitability: two outlets with similar sales may face different rent or staffing costs.

A hybrid model, combining fixed and variable elements, requires particular care. A minimum fee can secure some income for the franchisor, but it can also put a franchisee under financial pressure when business slows.

Compare these models across several scenarios: a gradual start, stable trading, a temporary fall in sales and an outlet with high overheads. The aim is not to find a universal formula, but to make the risks of each option clear.

3. Test the financial viability of both businesses

Use your existing business accounts as a starting point, but do not assume they will translate directly to a franchise operation. A future franchisee will face costs your own outlet may not have, including the franchise fees themselves.

Prepare an adjusted profit and loss forecast incorporating all mandatory contributions. Then assess the cash available after operating costs, loan repayments and the operator’s remuneration needs. A profit on paper does not guarantee that monthly payments will be affordable.

For the franchisor, forecast income using cautious assumptions about growth in outlet numbers. Check that you can deliver the promised support even if openings are delayed. Do not implicitly fund permanent commitments on the assumption that franchisee recruitment will keep growing.

If the figures only work under a very favourable scenario, revisit the fee, the services or the operating structure before recruiting. Ask your accountant to review these projections, clearly distinguishing actual figures from assumptions.

4. Set out clear rules in the contract

In France, franchise agreements are governed, among other things, by general contract law and competition law. Pre-contractual disclosure is regulated by Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law, and Article R. 330-1. Where the relevant conditions are met—notably where the right to use identifying signs such as a brand or trading name is granted alongside an exclusivity or near-exclusivity commitment—the pre-contractual disclosure document and draft agreement must be supplied at least twenty days before signing or making any advance payment.

The draft agreement must make the recurring cost clear: the amount or formula, a precisely defined calculation basis, tax treatment, charging frequency, due dates and payment methods. Also specify any phased fee increases during the start-up period, how long they apply and the conditions for any subsequent revision. Avoid wording that allows fees to change without an identifiable mechanism.

Have a lawyer with franchise expertise check that the contract, sales materials and financial projections presented to prospective franchisees are consistent.

Key takeaway: before setting your ongoing fee, prepare a list of services, several financial projections and a clear fee clause. All three must reflect the same reality.