QFA: Base franchise fees on the cost of support

In guidance published on 5 November 2026, the Quality Franchise Association (QFA) set out the factors to assess before setting franchise fees. For businesses preparing to expand in the Philippines, the guidance emphasises linking each fee to the services provided, the cost of support and the outlet’s ability to cover its operating expenses.

Separate calculations for pre-opening and ongoing support

According to the guidance, calculations should start with a list of the tasks needed to prepare a new outlet. These include assessing the applicant, pre-opening preparations, initial training and visits by the franchisor’s team during the early days of operation.

Staff time, travel costs, materials and other direct expenses should be recorded for each task. This provides a clearer basis than simply choosing an amount to charge.

Ongoing support should be costed separately. This covers outlet visits, resolving problems, maintaining the systems in use and providing regular operational guidance. The QFA cautions against automatically counting the same cost towards both initial and recurring fees.

It is also important to define the scope and frequency of each service: what exactly will the franchisee receive, and will it be provided once, monthly or only when needed? This ensures that each fee corresponds to a clearly defined activity.

The initial fee is not the total investment

The guidance clarifies that the initial franchise fee may cover entry into the franchise system, the rights granted and services provided before opening. It does not automatically represent the full amount needed to set up the outlet.

If equipment, opening stock, rental deposits or working capital are charged separately, this should be stated explicitly. The distinction matters so that applicants do not assume the initial fee alone is enough to launch the business.

As a starting point for pricing, businesses can add together direct preparation costs, a reasonable share of overheads and a chosen profit mark-up. However, the services and rights covered by the fee must be clear.

For ongoing franchise fees, the QFA recommends assessing the differences between a fixed charge and a percentage of sales. A fixed fee is easier to forecast but can become a burden when sales are weak. If a percentage is used, the sales figure on which it is calculated must be precisely defined.

Test the figures against weak and strong sales

The QFA suggests preparing separate projections for the franchisor and franchisee. For the franchisor, expected revenue from recurring fees should be compared with the actual cost of ongoing support.

For the outlet operator, the calculation should show what remains after deducting product costs, wages, rent, other operating expenses and all franchise fees. Looking only at total sales without accounting for these obligations is not enough.

The figures should also be tested against low, typical and high sales levels. The assessment should account for the higher cost of visiting remote outlets and periods when many franchisees need help at the same time.

For the franchise sector, this analysis addresses two linked needs: funding the support promised and understanding what an outlet retains after meeting its obligations.

Disclose fees before signing

The guidance refers to the Philippines’ Executive Order No. 169, series of 2022, which sets rules for covered agreements involving franchisees classified as micro, small and medium-sized enterprises. The minimum requirements include full disclosure of initial and recurring fees before signing.

The order does not prescribe the prices to be charged. Businesses remain responsible for establishing a reasonable basis for their fees. The QFA also advises having a lawyer review the fee schedule, payment timetable, refund terms and any mechanism for changing fees.

Practical step: Before charging fees, draw up a table matching each fee to its corresponding service, actual cost and impact on the outlet. If any of these four elements is still unclear, revise the calculations first.