Buying a Franchise: Check Pricing and Discounts

A shared brand identity does not automatically mean that every outlet must charge the same prices. Before joining a franchise network in Germany, clarify how much freedom you will actually have over pricing and discounts. Contract clauses are not the only consideration: till settings, central ordering channels and promotions can also affect the revenue you earn locally.

1. Understand the legal framework for selling prices

Germany has no dedicated franchise law. Franchise agreements are governed primarily by the general provisions of the German Civil Code and, depending on the circumstances, the Commercial Code and other legislation. For pricing requirements, Section 1 of the German Act against Restraints of Competition and Article 101 of the Treaty on the Functioning of the European Union are particularly relevant. These provisions address agreements that restrict competition.

Franchisees generally operate as independent businesses, acting in their own name and for their own account. Mandatory fixed or minimum resale prices are generally prohibited under competition law. This applies to more than just contract clauses expressly described as such: pressure or financial incentives can also turn an apparently voluntary price recommendation into unlawful resale price maintenance.

Non-binding recommended prices and maximum resale prices, by contrast, are not automatically prohibited. Whether they are lawful depends on their specific design and the applicable competition law requirements. The EU Vertical Block Exemption Regulation, Regulation (EU) 2022/720, provides an important framework for this assessment. However, it does not give blanket approval to pricing requirements within a franchise network.

Important: A competition law assessment must take account of the actual business model. Do not assume that special distribution arrangements or narrowly defined exceptions apply on the basis of a general explanation; seek specialist advice.

2. Check how pricing works, not just what the contract says

Before buying, request the pricing rules, including contract schedules, promotional guidelines and a description of the pricing functions in the point-of-sale system. Ask for a demonstration of how to change a local price using a typical product or service.

The following questions will help:

• Can you set your own selling prices and change them in the system without approval?
• Are centrally specified prices expressly non-binding, and is this respected in day-to-day operations?
• Who sets prices for orders placed through a central website or app?
• Are there disadvantages if you do not follow a recommendation, for example in relation to financial support or supplies?
• Who approves local discounts, and against what criteria?

Maintaining pricing data centrally can make operational sense. It becomes problematic when the technical setup effectively removes the freedom to make decisions that you have been promised under the legal arrangements. An editable price field is of little use if changes are then automatically overwritten.

Also distinguish between the purchase price charged by a supplier and the selling price you charge customers. The fact that the franchisor sets or negotiates purchasing terms does not, in itself, answer the question of your freedom to set resale prices.

3. Test the financial impact of discount promotions

A promotion may be legally permissible yet still be unprofitable for your outlet. Check separately whether participation is intended to be compulsory, who funds the discount and which costs remain unchanged despite the reduced revenue.

Prepare a simple calculation for a sample promotion: net sales revenue minus the cost of goods sold, variable staffing costs, payment processing and intermediary fees, and any turnover-based franchise fees. The result shows the contribution remaining to cover your fixed costs. Additional turnover alone is not evidence of financial success.

Pay particular attention to these points:

• Fee basis: Are turnover-based fees calculated on the revenue actually earned or on some other defined basis?
• Reimbursement: Will you be reimbursed for discounts promised centrally, and when will payment be made?
• Combining offers: Can customers use vouchers, loyalty discounts and promotional prices together?
• Capacity: Will the promotion generate extra staff hours or delivery costs that the promotional price does not cover?

Also ask how refunds and cancellations are accounted for. Where customer payments are collected centrally, the accounting and payment arrangements should be clearly set out and easy to follow. Promised financial support protects your cash flow only if your entitlement, the evidence required and the payment due date are clearly established.

4. Put decision-making freedom and promotional procedures in writing

Before signing, record which pricing decisions will be made locally and how central promotions will be prepared. Clear notice periods, transparent statements and a process for raising questions about profitability are all useful. Where promotions are voluntary, opting in or out should also be workable in practice.

Check contractual statements against actual procedures. If the contract says ‘non-binding recommended price’ but the promotional documents provide for penalties for departing from it, resolve that contradiction before joining. Verbal assurances should not be the sole basis for your financial projections.

Have any concerning pricing or promotional requirements assessed by a lawyer experienced in franchise and competition law. At the same time, a business adviser should check whether the proposed price levels are viable given your local operating costs.

Practical conclusion: Assess pricing freedom at three levels: legal requirements, technical implementation and actual margins. Only buy once it is clear who sets prices, who pays for discounts and whether promotions make financial sense for your business.