Buying a Franchise: How to Calculate Ongoing Fees

A low fee rate does not necessarily make a franchise offer good value. What matters is what the rate applies to, which additional payments arise and when they fall due. Before signing up to a franchise network, you should therefore prepare a full breakdown of fees. This guide explains how to assess ongoing charges and spot unclear contract terms.

1. The fee calculation base matters more than the percentage

Ongoing franchise fees may be agreed as a fixed amount, a percentage of turnover or a combination of the two. Do not compare brands solely on their fee rates. Two identical percentages can result in significantly different costs if the contracts define the relevant turnover differently.

Ask to see the calculation base in the draft agreement. The term ‘net turnover’ alone does not answer every practical question. In particular, check:

• VAT: Does the agreement explicitly exclude it from the fee calculation base?
• Discounts and refunds: Do they reduce the relevant turnover, and in which billing month?
• Vouchers: Is the fee charged when a voucher is sold or redeemed? How is double counting avoided?
• Platform sales: Does the fee apply to the price paid by the customer or the payout after the platform’s commission has been deducted?
• Outstanding receivables: Are fees charged as soon as an invoice is issued, even if the customer has not yet paid?
• Centrally allocated orders: Who is credited with the turnover when different parties handle the order, payment and delivery of the product or service?

Request a sample statement covering these types of transaction. It should use the same terms and calculation rules as the agreement. A verbal assurance such as ‘Of course we deduct returns’ is not a reliable basis for your financial projections.

2. Bring minimum fees and additional charges together

Create a fee schedule with columns for the recipient, calculation base, amount, due date, VAT and scope for changes. Include all mandatory ongoing payments, even if they are not called ‘franchise fees’.

These may include contributions towards shared marketing, point-of-sale software, booking systems, customer programmes or other central services. What matters is not the label, but whether you are required to use and pay for the service. Also establish whether payments go to the franchisor or a separate service provider, and which agreement governs them.

Minimum fees deserve particular attention. Check whether the minimum amount is payable instead of the percentage-based fee or in addition to it. Also ask whether a monthly minimum fee can be offset against fees in higher-turnover months. Do not assume this is possible unless the agreement provides for it.

For marketing contributions, distinguish between payments to a central fund and your own local advertising obligations. A central contribution does not automatically mean that your outlet receives an equivalent advertising budget. Ask which expenditure the fund covers and what reports the network receives.

Finally, record any tiered rates, introductory discounts and adjustment clauses. A low-cost first year can obscure the standard costs that apply later. For each time-limited benefit, note its expiry date and the calculation that applies afterwards.

3. Test fees under three turnover scenarios

Calculate the fees for a low-turnover, typical and high-turnover trading month. The aim is not to forecast sales, but to understand how the contract works under different conditions.

Here is a purely illustrative example: the agreed fee is five per cent of net turnover subject to fees, with a minimum of €1,000 per month. On turnover of €12,000, the percentage calculation gives a fee of €600, but the minimum fee increases this to €1,000. On turnover of €30,000, the fee is €1,500. These figures do not yet include other charges or any applicable VAT.

Next, calculate the following measure for each scenario:

Mandatory ongoing franchise network charges ÷ net turnover × 100 = effective fee percentage.

Use amounts excluding VAT consistently for this comparison. Your cash flow forecast, however, must reflect the actual payments due, including any applicable VAT, and their timing. Fees may be payable before customer payments arrive.

Have your tax adviser check the calculations. Also ask existing franchisees which recurring invoice items are easily overlooked when starting out. These conversations complement a contract review; they do not replace it.

4. Obtain legal advice on billing and contractual rights

Germany has no specific franchise law and no national franchise register. Fee agreements are governed in particular by the German Civil Code (Bürgerliches Gesetzbuch, or BGB) and, where applicable, the German Commercial Code (Handelsgesetzbuch, or HGB). There is no general statutory franchise fee rate: the amount and payment terms are generally agreed in the contract.

Pre-drafted contractual terms are, however, subject to scrutiny under the rules on standard terms and conditions in sections 305–310 of the BGB. Even in business-to-business contracts, clauses may be invalid, particularly if they lack transparency or place one party at an unreasonable disadvantage. An important distinction applies here: the core price agreement is generally not reviewed for its commercial fairness, but transparency and certain ancillary pricing provisions remain legally relevant. Have a qualified legal adviser review unclear calculation rules and unilateral rights to increase fees in particular.

Also agree a clear billing process: which turnover data must be submitted? By when must the statement be available? How are errors corrected? What inspection or audit rights apply, and who bears the audit costs? For marketing contributions, explicitly establish whether evidence of how funds have been used must be provided and, if so, in what form. Do not assume that membership of a shared network automatically gives you extensive information rights.

Practical conclusion: Do not sign until you can independently check a monthly statement. A complete fee schedule, calculations for three turnover scenarios and clearly agreed correction procedures provide a sound basis for joining a franchise network.