Franchising in the Philippines: Is the Upfront Fee Fair?

A low-cost franchise is not automatically good value, nor is a high upfront fee proof of quality. Before choosing a brand, find out exactly what the fee for joining its system buys you. In franchising, comparing clearly defined rights and obligations is more useful than simply comparing advertised prices.

1. Understand what the law says about pricing

In the Philippines, there is no general statutory cap or standard range for franchise fees, royalties or service charges. Saying that a fee is “standard” is therefore not enough to establish that it is fair. You need to examine what you receive in return and the agreement itself.

There is no single comprehensive law covering every aspect of franchising. General laws on contracts, intellectual property, competition, companies, taxation, employment and consumer protection apply, depending on the transaction. Under the Civil Code, parties may agree their own terms, provided these do not conflict with the law, morals, good customs, public order or public policy.

Executive Order No. 169 of 2022 also provides protections for micro, small and medium-sized enterprises taking on franchises. These include minimum contractual terms and the registration of relevant agreements with the Department of Trade and Industry (DTI). It is not a schedule of approved prices or a guarantee that an offer represents good value.

An important distinction: an agreed fee may be lawful without offering the best value for your business. Do not treat any registration or certificate as approval of the price.

2. Separate the fee for franchise rights from the package cost

Ask for a written breakdown of the total upfront charge. A single advertised price may combine the right to use the brand with equipment, opening stock, training and launch support. Without a clear breakdown, it is difficult to identify which elements are expensive or whether you are being charged twice for anything.

For each component, ask:

• Exactly what rights, products or services do I receive in return?
• Is this a one-off payment, or will further charges apply to use it?
• Are applicable taxes included?
• When will the product be delivered or the service provided?
• Is the stated scope recorded in the contract or an accompanying document?

For example, a “complete package” may exclude the trainer’s travel costs, equipment delivery or installation. A significant gap between expectations and reality does not require bad intentions: a vague description is enough.

If the franchisor will not provide a separate price for each component, ask at least for a detailed list of what is and is not included. You can still compare the overall offers, but recognise the limits of the information available to you.

3. Compare like-for-like offers, not discounts

Create a simple comparison table for the brands you are considering. Use the same columns for each: upfront fee, duration of the rights granted, number of outlets covered, products or services included, and items payable separately.

The length of the agreement matters. A lower fee for a shorter term is not automatically cheaper. However, do not simply divide the upfront fee by the number of years and treat that as a complete measure of value: the quality of support and the actual benefits of the system may differ.

Scrutinise discounts too. Ask what the regular price is, when the offer ends and whether any elements have been removed from the package. Free equipment adds no real value if it is not what your outlet needs.

Speak to existing franchisees operating the same franchise format. Ask which of the included services they actually received and what unexpected charges arose. Use their experience as a point of comparison, not as a guarantee that your circumstances will be the same.

4. Negotiate on value and certainty of delivery

A price reduction is not always the most important thing to ask for. A clearly defined scope, firm delivery dates or payments linked to the completion of agreed work may be more useful.

Before signing, have a lawyer review any terms concerning non-refundable fees. Clarify which obligations are considered fulfilled in return for the fee, and what happens if part of the package is not supplied. Do not assume that you will automatically receive a refund simply because things do not go as expected.

Ask for a final schedule of charges that matches the contract, not just the salesperson’s proposal. If a substantial part of the price cannot be explained, it is reasonable to postpone your decision.

A practical reminder: before paying, you should be able to explain on one page how much you will be charged, what you will receive in return and when you will receive it. If those three points are still unclear, you do not yet have enough information to judge whether the franchise is good value.