Buying a Franchise: Check the Minimum Sales Targets

Sales targets in a franchise offer are not always simply an indication of the business’s potential. Once written into the contract, those figures can become obligations that carry financial consequences or affect whether the franchise relationship continues. Clear targets help franchisors and franchisees align their expectations. Before buying, make sure you understand what you must achieve, how performance is measured and who bears the risk when business conditions change.

Distinguish between projections, management goals and contractual obligations

Start by asking the franchisor to identify every provision relating to sales targets. Do not just check the projections table in the proposal. Review the draft agreement and any documents it refers to, particularly the sections on performance reviews and the franchisee’s obligations.

Separate the figures you find into three categories:

• Projections: estimates based on particular assumptions, not guarantees of revenue.
• Management goals: objectives designed to help an outlet improve performance, without automatically triggering penalties.
• Contractual obligations: minimum performance requirements with consequences if they are not met.

Ask for written clarification if a figure is described as “for guidance only” but the contract treats failure to achieve it as a breach. Verbal explanations from the sales team are not enough to resolve that ambiguity.

Also check terms such as “adequate performance”, “maximum potential” or “results in line with network standards”. Without clear measures, it is difficult to judge when the franchisor might declare that the outlet has failed to meet its obligations. Propose that the assessment criteria and the consequences be set out separately and explicitly.

Make sure the calculation method and assessment period are clear

A seemingly straightforward target can produce different assessments depending on how sales are defined. Ask whether sales are calculated before or after discounts, refunds, taxes and cancelled transactions. For orders placed through apps, establish whether the figure used is the value of the customer’s transaction or the amount received after platform deductions.

Also check when transactions are recognised. An order paid for this month but fulfilled next month could affect target achievement if the contract does not specify the accounting basis.

Next, seek clarity on:

• Whether performance is assessed monthly, quarterly or as an average across several periods.
• When the obligation to meet targets begins after the outlet opens.
• How partial months of trading are treated.
• Whether a shortfall in one period can be offset by exceeding the target in the next.
• Which transaction records are used and how differences in calculations are resolved.

Propose an initial settling-in period if the outlet needs time to build a customer base. This is not an automatic entitlement: its duration and terms must be agreed. Seasonality matters too: the same target every month may not suit demand patterns in your location.

Test the consequences of missing targets, not just the targets themselves

The most important question is not simply whether a target is achievable, but what happens if it is missed. Read through each consequence in turn. Does it trigger only a review, require additional marketing activity, lead to specific payments or potentially result in termination of the franchise agreement?

Check whether several consequences can apply at once. In a hypothetical example, low sales might reduce cash receipts while the contract still requires minimum payments and additional promotional spending. That combination can be more burdensome than the sales target itself.

Use your own business figures to model three scenarios: meeting the target, missing it for one period and repeatedly falling short. Record the payments that remain compulsory, the cost of additional measures and the impact on the outlet’s cash flow. Do not assume that an additional payment replaces other obligations unless the contract says so.

Also ask which circumstances might justify an exception or reassessment, such as supply disruptions caused by the franchisor or a failure of the central ordering system. Propose a clear link between the cause of the disruption and any adjustment to the target. Avoid wording that places all the risk of meeting targets on you, including risks beyond your control.

Use the review period to agree clear boundaries

Indonesia regulates franchising specifically through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It requires the Franchise Offering Prospectus to be provided to prospective franchisees at least 14 calendar days before the agreement is signed. Use this review period to compare the commercial explanations with the sales target obligations in the draft contract.

This disclosure requirement does not mean that the government guarantees the sales figures in the offer. Nor should you assume that a particular minimum target is required by law simply because the franchisor describes it as a network standard. Ask for its contractual basis and business rationale.

The agreement is also subject to general contract law, including the requirements for a valid agreement under Article 1320 of the Indonesian Civil Code. Ask a legal adviser to review the wording of the targets and their consequences, particularly where additional payments or termination are involved.

Before signing, summarise what has been agreed in a single checklist: the definition of sales, assessment periods, the settling-in period, exceptions and the consequences of missing targets. Make sure the outcome of your discussions is reflected in the document you will sign.

The bottom line: do not buy simply because the targets look reasonable. Proceed only when the measurement method and the consequences of falling short are clear, can be quantified and fit the level of risk you can afford to take.