Product Pricing Before Franchising Your Business

When you own every outlet, setting a single price is straightforward. But before franchising your business, you need to clarify who will make pricing decisions when another entrepreneur is investing in and running an outlet. Across a franchise network, a uniform price list is not enough: you must also consider differences in costs, franchisees’ rights and legal limits.

1. Separate product standards from pricing decisions

Ingredients, portion sizes and serving methods may need to be consistent to maintain the brand’s identity. That does not automatically mean you can require every franchisee to charge exactly the same amount.

Before drawing up a policy, list the decisions that affect pricing:

• Standard in-store prices.
• Prices for delivery and other ordering channels.
• Temporary discounts and bundle offers.
• Markdowns on products approaching their expiry date.
• Statutory discounts, where applicable.

For each one, identify who will make recommendations, who will decide and who will bear the cost. Distinguish recommended prices from mandatory prices. If a price is only a recommendation, your conduct must reflect that: do not make it compulsory through threats, penalties or withholding normal support.

It is worth preparing a brief pricing decision-making matrix before having the relevant contract provisions drafted.

2. Have the policy reviewed under Philippine law

The Philippines has no single comprehensive law covering every aspect of franchising. Relevant legislation includes the Civil Code governing contracts, Republic Act No. 8293, or the Intellectual Property Code, and Republic Act No. 10667, the Philippine Competition Act, alongside other applicable laws.

Section 87.2 of Republic Act No. 8293 is particularly relevant to pricing. For agreements that qualify as technology transfer arrangements, provisions reserving the licensor’s right to fix the sale or resale prices of products manufactured under the licence are among those generally prohibited.

Do not assume that every franchise agreement falls within the same legal scope. Ask a lawyer with licensing expertise to assess whether your agreement qualifies as a technology transfer arrangement and how Sections 87 and 88 apply. The law provides a mechanism for exemptions; agreement between the two parties alone is not enough to make a problematic provision acceptable.

Executive Order No. 169, series of 2022, also sets out protections and minimum contractual requirements for franchises involving small and medium-sized enterprises. It does not give you permission to impose any pricing policy you choose. The policy’s effects on competition and consumers must also be assessed.

3. Test recommended prices against actual costs

Use data from your existing business to assess whether a proposed price is workable. The aim is not to promise profits, but to identify which costs may change when a different franchisee operates in a different location.

For each core product, record the cost of ingredients or stock, packaging, spoilage and transaction processing fees. Include sales-based fees in your analysis and, where applicable, delivery charges. Also assess whether the amount left over makes a sufficient contribution towards wages, rent and other operating expenses.

For example, in-store and delivery prices may be the same, but the amount left over may differ because of an intermediary’s commission. Add a discount, and each sale’s contribution towards the outlet’s costs could shrink substantially.

Model several scenarios using documented costs. Discuss the results with prospective franchisees without requesting or coordinating commercially sensitive pricing plans among independent businesses. Have this information-sharing reviewed too if it could raise competition concerns.

4. Establish a clear process for promotions

Before advertising a discount, prepare written details of its duration, eligible products, participating outlets and how customers can claim it. Clarify whether participation is voluntary and who will fund the discount.

If franchisees will be reimbursed, specify the evidence required, the calculation method and the payment schedule. Do not launch a promotion before explaining how outlets will receive the brand owner’s promised contribution.

Make sure advertisements, price lists and the system used to charge customers are consistent. Check whether the particular promotion requires a permit and whether it complies with consumer protection rules. Afterwards, review not only sales volumes but also costs, remaining stock and franchisees’ experience.

Practical takeaway: Before offering a franchise, prepare a pricing decision-making matrix, calculations based on actual costs and a clear promotional procedure. Have these reviewed alongside the contract so that your policy is clear, fair and lawful.