Hard or soft franchising: how much freedom should you give?

Turning your existing business into a franchise does not mean every decision must be made centrally from now on. You are building a franchise network of independent business owners, not a collection of copies of yourself. Before entering your first partnership, you therefore need to decide where consistency is essential and where a franchisee can make their own choices. The terms ‘hard’ and ‘soft’ franchising can help, but only if you translate them into clear decision-making powers.

1. Choose a workable division of responsibility, not a label

Under a hard franchise model, the franchisor sets relatively detailed requirements. These might cover the product range, branding and how customers are served. Under a soft franchise model, franchisees generally have more freedom, for example over local marketing or the mix of products and services they offer. In practice, you can take different approaches to different parts of the business.

So do not start by asking which label sounds appealing. Ask which aspects of your business make it distinctive and valuable to customers. What needs to be the same everywhere to deliver a consistent promise? And which choices depend on the local customer base?

Draw up an overview of the main business decisions, using three categories:

• Fixed: the franchisee follows a clearly defined requirement of the franchise model.
• Freedom within limits: the franchisee makes their own choice, provided it meets conditions agreed in advance.
• Local discretion: the franchisee decides independently and takes responsibility for that decision.

For example, a standard core service might be mandatory, while an additional local activity could be permitted subject to certain conditions. Explain the reasoning behind each classification. ‘That is how I do it myself’ is not a convincing reason to restrict all entrepreneurial freedom.

2. Assess freedom against your customer promise and responsibilities

Consider a familiar practical situation: your existing business regularly organises an activity for local residents. Must every future outlet offer exactly the same activity? Perhaps what matters most is the aim: building local relationships. In that case, the approach can vary without the franchise losing its identity.

Assess each choice using the same questions:

• Will customers notice the difference, and will it undermine the shared promise?
• Could a poor decision also affect other outlets or the brand?
• Who pays for putting the decision into practice, and who bears the financial risk?
• Does the franchisee have enough information and the right skills to decide independently?

Match freedom with clear responsibility. If a franchisee is allowed to organise a local activity independently, it must be clear who covers the costs, which branding materials they may use and what obligations arise towards customers.

Avoid offering freedom in name only. ‘You can choose for yourself, but everything must go through the franchisor first’ is actually an approval process. That may be appropriate, but call it what it is. Specify who assesses requests, which criteria apply and the agreed timeframe for a response. This prevents everyday decisions from stalling because you are the only person who can give permission.

3. Set legally sound limits on central control

The Dutch Franchise Act has been in force in the Netherlands since 1 January 2021. Its provisions are set out in Book 7 of the Dutch Civil Code. They govern matters including pre-contractual disclosure, assistance and support, consultation, and certain changes during the franchise relationship.

Hard and soft franchising are not separate legal categories. An agreement that meets the statutory definition of a franchise does not fall outside these rules simply because you call it ‘soft’. Nor does giving franchisees broad local discretion remove the franchisor’s legal obligations.

The agreed level of freedom must be clear in advance from the agreement and the accompanying information. Prospective franchisees must be able to assess which business decisions will remain theirs to make. Recruitment promises of ‘complete business independence’ are inconsistent with a contract that requires permission for almost every choice.

Competition law also places limits on central control. Imposing fixed or minimum resale prices on independent franchisees is generally prohibited. Recommended prices must not become mandatory through pressure or incentives. You should therefore have pricing arrangements and other provisions that restrict competition reviewed by a legal adviser.

If you later want to bring previously independent choices under central control, you cannot assume this will be permitted. Depending on the change, its financial consequences and the contractual terms, statutory consent rights may apply. A general power to amend the rules does not give you a free hand.

4. Test decision-making powers before recruiting

Review your overview against a typical working week in your existing business. Choose specific situations: a customer requests a non-standard service, a local organisation proposes a partnership, or an employee suggests a different way of working. Would a future franchisee be able to tell from your rules what they can do independently?

Ask someone who does not work alongside you every day to assess the same situations. If your answers differ, the boundaries are probably still too vague. Clarify the criteria rather than adding more and more exceptions.

Then use the same description of entrepreneurial freedom in discussions, recruitment materials and contractual documents. This will help you attract candidates who make an informed choice about how your franchise network works together.

Practical takeaway: before recruiting, draw up a single overview of fixed decisions, decisions subject to limits and decisions left to the franchisee. Test it against real-life situations and have the legal boundaries checked. This turns entrepreneurial freedom into a clear agreement rather than a sales promise.