Set Clear Franchise Fees Before Expanding in New Zealand

Before offering your existing business as a franchise, turn every proposed charge into a clear fee schedule. An attractive headline royalty is not enough: prospective franchisees need to understand the full payment structure. For a growing franchise community, clarity about fees helps prevent disagreements and gives both parties a practical basis for planning.

1. Give every fee a defined purpose

Start with a single register of all amounts a franchisee might pay to you, your related businesses or required third-party providers. Separate compulsory charges from optional services and distinguish one-off payments from recurring commitments.

For each charge, record:

• its name and purpose;
• who receives it;
• the amount or calculation method;
• when it becomes payable;
• what goods, rights or services it covers;
• whether GST is included or additional;
• any refund conditions or permitted adjustments.

The initial franchise fee might cover entry to the franchise system, initial training and specified launch assistance. Do not simply call it a ‘start-up package’ without listing its contents. Equipment, stock, travel, accommodation and premises costs may sit outside that fee, but an applicant should not have to discover those exclusions later.

Likewise, distinguish the ongoing royalty from software subscriptions, marketing contributions and separately charged services. If routine support is funded by the royalty, identify the boundary between that support and additional paid assistance. Charging twice for something presented as included is an avoidable source of mistrust.

2. Make the royalty calculation unambiguous

A royalty can be a fixed amount, a percentage of an agreed revenue measure or another clearly defined formula. Choose a structure that fits how your business takes payments and records sales, rather than copying another franchise’s headline rate.

For a percentage royalty, the definition of revenue matters as much as the percentage. Work through how the calculation treats:

• GST, refunds and cancelled transactions;
• discounts and promotional vouchers;
• gift cards at purchase and redemption;
• online orders and sales through delivery platforms;
• platform commissions and payment-processing charges;
• customer deposits and unpaid invoices.

For example, a delivery platform may deduct its commission before transferring money to the business. Your documents should explain whether the royalty applies to the customer’s purchase value or the smaller amount received. Neither treatment should be left to assumption.

Use the pilot operation’s actual transaction types to test the proposed definition. Ask your accountant to produce a sample calculation and check whether your sales software can generate the required figures reliably. The pilot tests whether the formula is workable; it does not prove that a particular fee will be affordable for every future franchisee.

State the reporting period, invoice timing and payment date. If a minimum royalty applies, explain when it starts and how it interacts with any percentage charge.

3. Deal with exceptions before they become disputes

Fees often become contentious around events rather than ordinary trading. Review what happens during a delayed opening, temporary closure, ownership transfer, renewal or termination.

For each event, decide whether charges continue, stop or change. Distinguish automatic contractual consequences from any discretionary concession. Do not imply that a trading interruption automatically suspends payment unless the agreement actually provides for that outcome.

List any additional charges for retraining, extra visits or processing a transfer, together with their triggers and calculation methods. Where travel expenses are recoverable, specify the approach to approval and supporting receipts.

If charges may increase, explain the mechanism, timing and notice requirements. A defined review process is more useful than an unexplained right to impose new charges. Have your lawyer assess proposed variation powers and other fee provisions against applicable unfair contract terms rules.

Keep a record of individually agreed concessions, including their duration. Ensure the agreement reflects them rather than relying on recruitment emails or verbal promises.

4. Align the schedule with New Zealand law and documents

New Zealand has no franchise-specific legislation, statutory franchise disclosure regime or franchise registration requirement. General law still applies. The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations; an incomplete explanation of compulsory fees can therefore create legal risk. The Contract and Commercial Law Act 2017 also provides remedies for contractual misrepresentation.

Membership of the Franchise Association of New Zealand (FANZ) is voluntary. Its Code of Practice and Ethics imposes disclosure obligations on members; it is not a government licensing scheme. Members should check their fee disclosures against the Code’s requirements.

Have a franchise lawyer reconcile the fee schedule with the agreement, disclosure material and recruitment information. Your accountant should check GST treatment and calculation examples. Avoid suggesting that a fee guarantees profitability or a particular return.

Practical takeaway: Before recruitment, run a sample month of pilot transactions through your proposed fee schedule. Resolve every unclear charge, exclusion and payment trigger, then make all applicant-facing documents consistent.