Buying a franchise: check the minimum sales targets

A sales target can be a useful planning tool or a binding obligation with serious consequences. Before entering the Greek franchise market, you need to know which applies to the proposal you are considering. The key question is not simply whether the target looks achievable, but who sets it, how it is measured and what rights you retain when actual conditions differ from the plan.

1. Distinguish between a forecast and a contractual obligation

A franchise presentation may refer to an ‘indicative annual turnover’. The agreement, however, may specify a ‘minimum required performance’. These phrases serve different purposes: the first presents an estimate, while the second may be linked to penalties or termination of the agreement.

Ask for all relevant provisions in the agreement, its schedules and any annual business plans to be brought together for review. In particular, check whether signing a subsequent business plan means accepting new binding targets.

For each target, record:

• The precise measure used: revenue, number of transactions or another result.
• Whether sales are calculated inclusive or exclusive of VAT, returns and cancellations.
• Which sales are attributed to your outlet, particularly where a central online shop is involved.
• The measurement period and its start date.
• The data source and the procedure for correcting errors.

Do not rely on the word ‘indicative’ in a presentation if the agreement describes the same figure as a mandatory minimum.

2. Assess whether the target fits your outlet

The performance of an established outlet in a busy retail location does not prove that a new outlet in a different neighbourhood can immediately meet the same target. Ask how the minimum threshold was calculated and which local market characteristics were taken into account.

With an independent financial adviser, examine seasonality, trading days, service capacity and the time needed to build a customer base. This assessment is not just about potential profitability: it tests whether you are taking on an obligation you can actually fulfil.

It is useful to test different scenarios. What happens if opening is delayed, there are prolonged product shortages or construction works make access difficult? Do not assume that such events are automatically excluded from the calculation.

Negotiate a defined settling-in period and rules for calculating targets on a pro rata basis for the first year, which may not be a full trading year. Also propose a review procedure for material changes in circumstances. An annual target should not silently become a requirement for equal monthly performance, particularly in a seasonal market.

3. Review the target, any changes and the consequences together

An initially reasonable target can become problematic if the franchisor is entitled to increase it without clear criteria. Check whether your agreement is required, how much advance notice must be given and whether there is an objective method for adjusting the target. Wording such as ‘in accordance with the commercial policy in force from time to time’ needs particular scrutiny where it creates a new financial commitment.

Next, map out the consequences of falling short. These may include additional charges, loss of contractual benefits or a right to terminate the agreement. Check whether they are triggered by a single missed target or repeated underperformance, and whether they can be imposed cumulatively.

Ask for a staged procedure:

1. Written notification with a detailed breakdown of the shortfall.
2. An opportunity to check and challenge the calculations.
3. A joint investigation into the causes and a specific improvement plan.
4. A reasonable period to remedy the shortfall before more serious consequences apply.

These are points to negotiate, not rights you should take for granted. Also examine how the agreement treats underperformance linked to a documented breach of the franchisor’s obligations.

4. Understand the Greek legal framework

Greece has no specific law comprehensively governing franchise agreements, nor a dedicated mandatory pre-contractual disclosure regime for franchising. The general rules of the Greek Civil Code apply, alongside commercial law and rules on unfair competition and competition law, depending on the issue.

For information provided before signing, Articles 197 and 198 of the Civil Code are relevant to good faith in negotiations and pre-contractual liability. During performance of the agreement, Article 288 on good faith in fulfilling obligations and Article 281 prohibiting the abusive exercise of rights are also important.

This does not mean that a demanding target is automatically invalid. The assessment depends on its wording, the circumstances and how it is applied. The European Code of Ethics for Franchising calls for full and accurate written pre-contractual disclosure within a reasonable time, but it is a self-regulatory framework, not a universally applicable Greek law.

Practical takeaway: before signing, ask an independent lawyer to review the target, the mechanism for changing it and the penalties together. Accept only obligations that you can measure, assess and budget for.