Minimum franchise turnover: what should you commit to in the contract?

When buying a franchise, you need to understand not only how much you could earn, but also what level of performance is expected of you. A contractual minimum turnover, sales target or required customer count can have consequences even if your business is otherwise viable. In a well-run franchise network, expectations are measurable, disclosed in advance and backed by clearly defined support. Before signing, examine both the targets and their contractual consequences.

1. Distinguish between projections and obligations

The projected revenue in a presentation, the target in a business plan and the contractual minimum are three different things. The first may be information provided for guidance, the second a planning assumption, while the third is an enforceable commitment. A figure appearing in the franchise information pack does not necessarily make it a contractual obligation: that depends on how the documents relate to one another and their precise wording.

Ask the franchisor to identify which performance measures are mandatory. Review the schedules too: the main agreement may simply refer to a plan issued each year. In that case, it is particularly important to establish who sets the next period’s target and whether your consent is required.

Ask for a precise definition of every measure:

• Is turnover measured net or gross?
• How are returns, cancellations and discounts treated?
• Do orders placed through the central platform count?
• Is performance assessed monthly, quarterly or annually?
• Does measurement begin on opening day, or is there an initial ramp-up period?

Also distinguish between a mandatory minimum fee and a minimum turnover requirement. The former may be payable even when sales are weak; the latter is a performance requirement that may carry separate legal consequences. Together, they can significantly increase your risk.

2. Check whether the target is achievable locally

The network average does not prove that your chosen location will reach the required minimum. An established city-centre shop may perform very differently from a newly opened outlet in a smaller town. Ask for comparable operating data, preferably aggregated or anonymised, covering locations with similar population sizes, premises, opening hours and trading histories.

Do not just ask how many outlets met the target. Find out what support they received, how long they took to establish stable operations and what happened to those that fell short. When speaking to existing franchisees with the franchisor’s permission, ask specifically how minimum requirements are applied in practice.

Translate the annual requirement into day-to-day operations. Divide the required turnover by the actual number of trading days, then estimate how many transactions and what average transaction value you would need. For a service business, staff capacity, appointment numbers and utilisation rates may be decisive. If the target can only be achieved by consistently operating at full capacity, there is little room for staff illness or seasonal downturns.

Prepare a lower-demand scenario too. Look beyond revenue: include the cost of any additional work, promotions or local advertising needed to achieve the target. Higher turnover does not, on its own, mean better profitability.

3. Understand the Hungarian legal framework

Hungary has no standalone, comprehensive franchise act, but it would be wrong to say that franchise agreements are unregulated. Act V of 2013, the Hungarian Civil Code, regulates franchise agreements in Sections 6:376–6:381. General contract rules also apply, including provisions on co-operation, the provision of information and breach of contract.

There is no general statutory minimum turnover for franchises. You must look primarily to the agreement to understand the precise commitment, how it is measured and the consequences of breaching it. Missing details are not automatically supplied by a uniform set of franchise rules.

Nor is there a general requirement under specific franchise legislation to provide a mandatory pre-contractual disclosure document. Guideline 2002/1 (IX. 18.) of the Hungarian Franchise Association recommends allowing at least 14 days to review the contract in advance; this is industry guidance, not a statutory waiting period. Use that time to review the performance commitments as well.

If a contractual penalty is attached to the minimum requirement, the penalty clause is subject to the Civil Code and must be in writing. A court may reduce an excessive penalty at the request of the party liable to pay it, but this is no substitute for negotiating contractual safeguards before signing. Have a lawyer check the precise wording.

4. Agree a remedial process rather than automatic penalties

Ask for a staged procedure: written notification, a joint assessment, an action plan and a reasonable period to put matters right. It should be clear what level of shortfall triggers the process and when more serious measures may follow. A single weak month should not be treated in the same way as persistent underperformance.

Set out the franchisor’s responsibilities too. If meeting the target depends on central marketing campaigns, a functioning ordering system or uninterrupted supplies, specify how any failure in these areas will be handled. Do not assume that every external obstacle automatically releases you from your commitment.

Ask for an agreed review mechanism for circumstances such as prolonged road closures, restrictions affecting the premises or major supply disruptions. Annual target increases should follow a clear method, with an advance notice deadline and an agreed consultation process. Do not accept retrospective increases without scrutiny.

Practical takeaway: only commit to a minimum if you understand how it is calculated, there is local evidence that it is achievable and you know in advance what happens if you fall short. Alongside the target, ask for a commitment to support and a structured process for putting underperformance right.