Franchise promotions in Mexico: who pays for the discount?

A promotion can increase sales yet still leave less cash in the till. Before buying a franchise in Mexico, check who decides on discounts, who bears the cost and how payments are settled. Across a franchise network, a shared campaign needs clear rules so franchisees can calculate its impact and take part without compromising their operations.

1. Identify which promotions you will have to accept

It is not enough to ask whether the brand runs national campaigns. Request its commercial policies and examples of previous promotions: direct discounts, bundles, vouchers, loyalty rewards and offers through delivery apps. These mechanisms are not interchangeable, and they do not all affect your revenue in the same way.

For each type, ask for written answers to these questions:

• Is participation compulsory, voluntary or dependent on the outlet format?
• Who sets the duration, the products included and the redemption limits?
• How much advance notice does the outlet receive?
• Can discounts and rewards be combined?
• What happens if there is insufficient stock or capacity to meet demand?

Distinguish between funding a campaign’s advertising and bearing the cost of the discount. Paying an advertising contribution does not, in itself, mean the franchisor will reimburse the difference between the usual price and the promotional price.

If the answer is ‘each campaign is decided later’, you still need to understand the rules that will constrain those decisions and the obligations you will take on when you sign.

2. Check the contractual provisions in Mexico

Mexico has specific franchise legislation. Article 246 of the Federal Law for the Protection of Industrial Property (LFPPI) requires franchise agreements to be in writing and to include certain minimum provisions.

When assessing promotions, particularly relevant provisions include marketing and advertising policies; policies, procedures and deadlines for reimbursements and other payments; and the criteria and methods used to determine the franchisee’s profit margins or commissions.

These requirements do not amount to a legal guarantee of profitability, nor do they require the franchisor to pay for every discount. How the cost is shared must be clear in the documents governing the relationship.

Article 245 also requires prospective franchisees to receive information about the state of the business at least thirty days before entering into the agreement. Use this period to compare the financial information supplied with the proposed promotional obligations.

Ask a lawyer to review the agreement, its annexes and any commercial policies incorporated into it together. They should be able to identify which document takes precedence if there are inconsistencies, and whether a policy allows costs to be imposed without a sufficiently defined procedure.

3. Calculate the margin on each promotional sale

Request a worked example showing how much your outlet retains after a discounted sale. Do not settle for a forecast of increased customer numbers: selling more does not prove that a promotion is worthwhile.

As a starting point, calculate:

Revenue actually received + confirmed reimbursement − variable costs of the sale = contribution available to cover fixed costs.

Variable costs may include the product, consumables, packaging, payment processing or delivery fees, and contractual payments linked to that sale. With your accountant’s help, ensure taxes are treated consistently.

Also check the basis on which each charge is calculated. If a payment is based on the pre-discount amount, your revenue may fall without that charge decreasing proportionately.

Compare three scenarios: a standard sale, a promotional sale without financial support, and one with the reimbursement offered. Then ask how many additional sales would be needed to offset the lower contribution. Allow for the possibility that promotional purchases will replace purchases customers would otherwise have made at full price.

4. Establish how you will receive the promised support

‘The brand covers part of the cost’ is an incomplete explanation. Before signing, ask for the support arrangements to specify:

• The reimbursement amount or formula, and any limits.
• The supporting documents needed to verify each transaction.
• The deadlines for submitting claims and receiving payment.
• The payment method: bank transfer, credit note or another agreed mechanism.
• The procedure for resolving rejected transactions or discrepancies.

In particular, clarify what happens when your outlet accepts points or vouchers earned or issued at another outlet. Also check who validates redemptions and how duplicate redemptions, returns or system failures are handled.

Support that has been approved but is paid later will not necessarily cover the immediate cash outflow. Factor this timing gap into your assessment, and avoid treating a conditional reimbursement as available cash.

Practical conclusion: before buying, insist on a complete worked example of a promotion, from authorisation through the sale, discount and charges to final settlement. If you cannot work out how much your outlet receives and when, an important financial condition still needs clarification.