Setting Franchise Fees in Lebanon: From Support Costs to Contract Terms

When you decide to franchise an established business in Lebanon, do not start by asking what other brands charge. Start with what a franchisee needs to replicate your business model, and what you can realistically provide in return for the fees. Balanced pricing keeps outlets viable, funds your obligations as a franchisor and lays the foundations for a clear relationship across the franchise network. This guide focuses on designing and testing your fees before offering your first franchise.

1. Separate the initial franchise fee from ongoing support costs

Draw up two cost lists before setting any amounts. The first covers bringing a new franchisee into the network: site assessment, initial training, help with preparations for opening and the staff time devoted to launching the outlet. The second covers recurring work after opening, such as site visits, further training, updates to tools, quality monitoring and resolving operational problems.

The initial fee does not have to cover direct costs alone; it may also reflect the value of the brand and its know-how. But it should not be a figure chosen to recover all the costs of setting up your original business. Ask yourself: exactly what does the franchisee receive, when do they receive it, and what falls outside this fee?

Create an internal schedule for each service, showing who is responsible, the time required, its cost and who pays for it. In particular, distinguish your team's fees from expenditure on equipment, stock and rent. If opening equipment or the launch campaign is charged separately, do not present the initial fee as though it covers everything needed to start trading.

2. Test the fees against realistic outlet economics

Use data from an existing outlet or a pilot operation with conditions comparable to those a franchisee would face. Do not rely on the profitability of an outlet where the founder works every day without an allowance for their salary, or one that benefits from unusually low rent and personal supplier relationships that cannot be transferred. Include the cost of a replacement manager, the staff required, maintenance, energy, wastage and all other actual expenses.

Then add the proposed franchise fees and all related payments to the financial model. Test lower-than-expected sales, higher purchasing costs and a longer period before operations stabilise. The aim is not to prove that the offer works, but to identify the point at which fees become a burden that prevents the outlet from meeting its obligations.

You might charge an ongoing royalty as a percentage of sales, a fixed amount or a combination of the two. A percentage varies with trading activity, whereas a fixed amount remains payable even in weaker months. A minimum periodic payment requires careful testing, particularly during the launch phase. No single formula suits every business, and a fee that works for the franchisor does not necessarily work for the franchisee.

Test the other side of the equation too: will royalties fund the promised support while the franchisee base is still small? If you continually need to sell a new franchise to fund services for existing outlets, rethink the model before expanding.

3. Define sales, currency and payment procedures

The phrase ‘a percentage of sales’ is not enough to create a workable contractual obligation. Specify which sales count towards the calculation and how taxes, discounts, refunds and cancelled orders are treated. For deliveries, clarify whether the calculation is made before or after the platform's commission, and how you will avoid counting the same order twice.

In Lebanon, the currency used to calculate fees and the currency used to pay them need explicit treatment. If they differ, specify the conversion method, conversion date and agreed exchange-rate reference, following legal and accounting review to ensure the arrangement complies with the mandatory rules in force when it is applied. Avoid vague phrases such as ‘the market rate’ without a verifiable definition.

Set clear payment procedures covering:

• The deadlines for submitting sales reports and issuing invoices, and the payment due date.
• The records supporting the calculation and the rights to verify them.
• How errors will be corrected and disputes addressed.
• Who bears bank charges and how late payments will be handled.

You can test the calculation using an actual month's data before signing the agreement. If the accountant and business owner arrive at different results, the definition needs further refinement.

4. Make additional payments transparent

The cost of the relationship is not limited to the initial fee and ongoing royalty. There may also be marketing contributions, technology subscriptions, additional training charges, renewal fees or franchise transfer fees. Bring them together in a single schedule showing the basis of calculation, payment frequency, the corresponding service and the conditions for any changes.

If you establish a shared marketing contribution, specify how the funds may be spent and what reports you will provide. Distinguish it from any local advertising budget required of the outlet. Do not present the contribution as a promise of guaranteed sales. Also explain mandatory supply arrangements and their financial impact, including any margins or benefits received by the franchisor where these form part of the proposed relationship.

5. Turn the financial model into clear legal terms

Lebanon does not have a comprehensive franchise-specific law or a dedicated mandatory disclosure regime comparable to those in some other countries. The agreement is governed primarily by the Code of Obligations and Contracts, alongside rules on commerce, intellectual property, competition, taxation and other matters, depending on the obligation concerned. The absence of specific legislation does not mean that any term can be imposed or that misleading information may be provided.

Likewise, do not assume that Legislative Decree No. 34 of 1967 on commercial representation applies automatically, or that it is excluded simply because the agreement is labelled a ‘franchise’. The legal characterisation and substance of the relationship require review by a Lebanese lawyer, given the legal and judicial debate over the scope of its application.

Ask for a review of when the initial fee becomes payable, the circumstances in which it is refundable, the consequences if the outlet cannot open, and the provisions for fee changes, renewal and termination. The practical takeaway: do not quote fees until you have a service schedule, a tested profitability model, clear accounting definitions and contract wording that matches them.