Set your pricing policy before opening your first franchise outlet

In your own business, you decide what customers pay. Once you start working with independent franchisees, that changes. Having a recognisable franchise brand does not mean you can dictate every selling price. A carefully designed pricing policy protects both your brand image and entrepreneurial freedom within your franchise network. Before signing your first franchise agreement, establish how price recommendations, till systems and joint promotions will work together.

1. Distinguish between franchise standards and compulsory pricing

A franchisee runs their own business, for their own account and at their own risk. You can agree on franchise standards, but that independence has implications for the selling prices you want to apply.

Alongside the Dutch Franchise Act, competition rules also apply. Particularly relevant are Article 6 of the Dutch Competition Act and, where trade between EU member states may be affected, Article 101 of the Treaty on the Functioning of the European Union. These rules restrict anti-competitive agreements between businesses.

Imposing fixed or minimum resale prices is generally prohibited. This applies to more than just a contractual price list. Indirect pressure can also be problematic: for example, making support conditional on following your recommended price, or disadvantaging a franchisee because they charge lower prices.

Recommended and maximum prices may be permitted under certain conditions, provided that pressure or financial incentives do not effectively turn them into fixed or minimum prices. The precise assessment depends on the arrangements and circumstances. Have any exceptions and compulsory pricing promotions reviewed for compliance with competition law in advance.

Separate your policy into three categories:

• Franchise standards: for example, presentation, service and product quality.
• Price recommendations: a reasoned proposal from which the franchisee is genuinely free to depart.
• Joint promotions: temporary campaigns for which participation, pricing and costs are set out separately.

A consistent brand identity is therefore quite different from a uniform, enforced price at the till.

2. Test recommended prices against the costs of an independent outlet

A price that works well in your existing business may not deliver the same margin for a franchisee. Rent, staffing, local competition and sales volumes can differ. The franchisee may also face franchise fees that your own outlet does not bear in the same way.

Use your existing business to test the basis for your recommended prices. For each key product or service, look beyond purchase costs to include labour, waste, payment processing and other directly related costs. Then calculate what remains to cover fixed overheads and the business owner’s income.

Use several scenarios rather than assuming one ideal outlet. What happens if a treatment takes longer, fewer customers buy an additional product, or an outlet has higher labour costs? State your assumptions explicitly and do not present an illustrative calculation as a guaranteed result.

Discuss with the prospective franchisee how they can make their own pricing decisions. You are providing knowledge and tools, not imposing a common profit margin. This gives price recommendations practical value without undermining the franchisee’s independence.

3. Make sure the agreement, manual and till system are consistent

An agreement stating that recommended prices are optional is of little use if the till blocks different prices. Check the entire process, from recommending a price to taking payment from the customer.

Set out in the agreement who determines selling prices and how price recommendations are communicated. Then describe the practical arrangements in the operations manual: who can change a price, how menus or price lists are updated, and how errors are corrected.

Before launch, test at least these situations:

• The franchisee chooses a different standard selling price.
• An outlet does not want to take part in a proposed discount promotion.
• Centrally produced marketing material shows a price that does not apply locally.
• An automatic system update overwrites a local price setting.

The Dutch Franchise Act has applied since 1 January 2021 and is incorporated into Book 7 of the Dutch Civil Code. Among other things, it requires franchisors to provide information before the agreement is signed. Give prospective franchisees timely clarity on pricing-related obligations, systems and foreseeable costs. Allow for the statutory standstill period of at least four weeks.

A franchisee’s consent does not make a pricing agreement lawful if it is prohibited under competition law. Both legal frameworks continue to apply alongside each other.

4. Organise discount promotions without hidden obligations

A nationwide campaign can be attractive, but someone has to bear the cost of the discount. Work through the details of each promotion before commissioning advertising materials.

Describe the objective, duration, participating products or services, and who funds the discount. Explain how participation is agreed and what customers can expect at outlets that are not taking part. Make sure customer communications reflect actual availability and conditions.

Do not let a voluntary promotion become compulsory through penalties, reduced support or software that cannot be adjusted. Nor should franchise meetings be used to allow independent business owners to agree future minimum prices among themselves.

Afterwards, assess the financial return, margin and practical feasibility, not just additional turnover. This will help you improve future campaigns using real experience.

Practical conclusion: before opening your first franchise outlet, draw up a single pricing protocol and test it in your systems. Have a legal adviser check that the freedom granted on paper genuinely exists at the till.