Minimum Sales Targets in Franchise Agreements in Lebanon

When turning an existing business in Lebanon into a franchise, you may want to require franchisees to achieve a minimum level of sales. But copying your original outlet’s figures into the agreement does not create a fair benchmark and may turn normal differences between locations into a dispute. A useful target is based on data, measures performance the operator can influence, and sets out in advance what happens if sales fall short. With this approach, the clause becomes a tool for improving performance across the franchise network, rather than an implied promise of profit or an ill-defined means of applying pressure.

1. Define the purpose of the target before setting the figure

Start by asking why you need a minimum sales target. The aim might be to ensure that franchisees invest their time and resources in developing the outlet, or to identify operational weaknesses early. Record that purpose internally before drafting the obligation: it will help you choose an appropriate benchmark and a proportionate response if it is not met.

Distinguish between three things that should not be conflated: a financial forecast that helps a prospective franchisee assess the opportunity, a management target used to monitor performance, and a contractual obligation with legal consequences. Including a figure in a business plan should not automatically make it a binding minimum, just as including it in the agreement does not mean the franchisor guarantees it will be achieved.

Likewise, do not confuse a sales target with a minimum royalty. The former measures the outlet’s performance, while the latter creates a payment obligation under its terms and may be payable even when revenue is low. If the agreement contains both, explain their combined impact on the franchisee, and do not use one to obscure the other.

2. Base the target on comparable operating data

Draw on actual data from your business, then assess whether it provides a suitable benchmark for the new outlet. An outlet that has operated for years in an established location, with the founder present, is not comparable to a new outlet run by a franchisee who is still learning the system. Separate the effect of the original location’s reputation from that of the operating model you will transfer.

Prepare a document setting out the basis for the target, including:

• The period covered by the data, and whether it included a strong or weak trading season.
• The outlet’s floor area, opening hours and service capacity.
• The sales channels that contributed to the results, and whether they will be available to the new outlet.
• Any exceptional expenditure or resources that supported the benchmark outlet.
• Assumptions about customer demand, average transaction value and the gradual build-up of operations.

In Lebanon, also explain how changes in prices and currency values affect the comparison. An increase in nominal sales value does not, by itself, demonstrate improved performance if it results from price changes. Tracking transaction numbers or units sold alongside sales value can help explain the results, without turning every indicator into a separate contractual obligation.

Share the basis for the target with the prospective franchisee and give them an opportunity to discuss its assumptions with their adviser. Keep a dated copy, and do not present past results as a guaranteed outcome for their outlet.

3. Set out a measurement process that avoids surprises

It is not enough for the agreement to require ‘satisfactory sales’. Define when measurement begins, the period it covers, the data source and the process for correcting errors. Link the start date to actual trading under clearly defined conditions, rather than simply to the signing of the agreement when the outlet has not yet opened.

You can agree on a start-up phase before the full minimum applies, or on phased targets that reflect the development of operations. These are contractual options, not legally prescribed grace periods. Choose an approach supported by your business’s experience, and avoid giving yourself an unrestricted right to change the target unilaterally.

Also establish a procedure for the franchisee to challenge reported results and correct data within an agreed period. Address closures, system failures and supply shortages in advance: who records the incident? How will its contribution to lower sales be assessed? Does it warrant adjusting the measurement period? Do not treat every circumstance as an automatic exemption, but do not disregard circumstances that genuinely prevented the outlet from operating.

4. Link underperformance to diagnosis and corrective action

Sales reflect several contributing factors and are not, on their own, evidence of shortcomings on the operator’s part. Before imposing a sanction, examine product availability, service standards, the implementation of local marketing and the franchisor’s ability to provide the agreed support. The review may reveal that the problem lies in the assumptions behind the target itself.

Design a written process that begins with a notice identifying the period of underperformance and the data relied upon, followed by a meeting to establish the causes and a corrective action plan with clear responsibilities and deadlines. The plan might include additional training, better order management or measures to address recurring supply interruptions. Before implementation, specify the work and costs each party will bear.

Then carry out a documented review. Do not treat a temporary shortfall in the same way as repeated underperformance despite remedial measures. If you want failure to meet the target to trigger contractual action, have a lawyer draft specific, proportionate provisions that take account of the causes and both parties’ obligations, rather than assuming automatic termination is valid in every case.

5. Review the clause within Lebanon’s legal framework

Lebanon has no comprehensive legislation specifically governing franchise agreements, nor a franchise-specific mandatory disclosure regime comparable to those in some other jurisdictions. That does not, however, place negotiations or target-setting outside the law. The general rules of the Code of Obligations and Contracts apply, including those concerning valid consent, good-faith performance of obligations and liability, alongside the Code of Commerce and other rules relevant to the activity.

Legislative Decree No. 34 of 1967 on commercial representation may also be relevant, depending on the legal characterisation of the relationship. Do not assume that it applies, or that it is excluded, simply because the agreement is labelled a franchise. Ask for the sales clause to be reviewed within the agreement as a whole, particularly its relationship with the franchisor’s obligations and contractual sanctions.

Practical takeaway: Before adopting a minimum sales target, prepare a documented justification, a clear measurement process and a corrective action procedure that assigns responsibilities to both parties. If you cannot explain these elements simply to a prospective franchisee, the clause is not yet ready to sign.