Building a franchise network: legally compliant pricing recommendations

In your own business, you decide on selling prices. When that business develops into a franchise network, you cannot simply extend this authority to independent partners. Uniform prices may make advertising and administration easier, but binding requirements can create legal problems. Before taking on your first franchisee, you should therefore establish how costing tools, recommended prices and joint promotions will work — including the technical settings in your till and ordering systems.

1. Make pricing autonomy your starting point

Franchisees generally trade in their own name and on their own account. They bear their own costs and commercial risks. As a rule, they must be free to set their own prices when reselling goods and services. A shared brand identity does not automatically justify binding retail prices.

Germany has no dedicated franchise legislation, franchise-specific registration requirement or official contract approval process. Franchise relationships are governed in particular by the German Civil Code, the Commercial Code where applicable, and competition and trade mark law. Pricing requirements are subject primarily to section 1 of the German Act against Restraints of Competition and, where trade between EU Member States may be affected, Article 101 of the Treaty on the Functioning of the European Union.

The Vertical Block Exemption Regulation (EU) 2022/720 provides a framework for exemption from competition law prohibitions, subject to certain conditions. Under this regulation, binding minimum or fixed resale prices are generally treated as hardcore restrictions. Non-binding recommended prices and maximum resale prices, by contrast, may be permissible, provided that pressure or incentives do not effectively turn them into minimum or fixed prices. Any exemption also depends on further conditions being met.

The practical implication: Have your pricing model reviewed for competition law compliance before building your contract templates, advertising and software around it. A franchise association’s code of ethics is no substitute for this review and is not legislation.

2. Keep costing support separate from pricing requirements

An established business provides valuable costing experience. You can use this to develop clear, practical tools for future franchisees without dictating their selling prices. For example, set out material requirements, typical processing times and operating cost items. Identify your assumptions and explain which figures franchisees need to replace with data from their own location.

A useful costing template includes:

• the services and quantities on which the calculation is based;
• clear cost assumptions, with a date or version reference;
• editable fields for local staffing and premises costs;
• a clear distinction between a worked example and a recommended price;
• a statement that franchisees set their own selling prices.

Simply labelling a recommendation “non-binding” is not enough. Head office’s conduct must reflect that wording. Responding to different prices with poorer support, less favourable supply arrangements or other sanctions can turn a recommendation into an unlawful pricing obligation. Benefits granted solely for charging a particular retail price can be equally problematic.

Train your franchise support team accordingly. They may explain calculations and discuss commercial implications, but should not demand adherence to recommended prices. Document recommendations as support, rather than as a network quality standard that must be monitored and enforced.

3. Check that till systems and advertising allow genuine freedom of choice

Pricing autonomy must exist beyond the contract. If head office locks prices in the system or allows changes only with its approval, a recommendation worded as non-binding offers little protection. Check what users can actually do in every system you use.

Can franchisees change suggested prices independently? Are local settings overwritten at the next data synchronisation? Do the same options exist in the online shop, ordering kiosk and delivery platform? Central product data management can generally be separated from local pricing decisions. Plan for this separation when selecting your software.

Joint advertising also requires preparation. A nationally advertised price must not quietly become compulsory for every franchisee. Before publication, establish which outlets are participating, how local offers will be presented and whether the price information is clear to consumers. Alongside competition law, particular attention must be paid to the German Act against Unfair Competition and the Price Indication Ordinance.

A general reference to participating outlets does not resolve every issue. Advertising, actual availability and fulfilment at each location must be consistent. Check centralised ordering processes particularly carefully: both legally and technically, it should be clear who contracts with the customer and who sets the price.

4. Plan promotions in advance using a set review process

Joint discount promotions are particularly prone to errors because advertising, funding and pricing decisions overlap. For each promotion, first establish which goods or services are covered, who bears the cost of the discount and what freedom of choice franchisees retain.

In particular, distinguish between a discount on the franchisee’s purchase price and a requirement governing their selling price. A time-limited promotion is not automatically exempt from competition law prohibitions. Special arrangements should undergo specialist review before they are introduced.

Then run a trial in your own business to test the advertising, till settings and settlement processes from a technical perspective. However, this does not replace a review of independent franchisees’ pricing freedom. Record the approved procedures in a short internal operating instruction and ensure it is consistent with the contract and operations manual.

Practical next step: Review one specific pricing recommendation from the costing spreadsheet through to the till receipt. Wherever franchisees cannot genuinely make their own decisions, the arrangement needs clarification before you expand your franchise network.