Turnover-based franchise fees: how to set the calculation rules

When turning your business into a franchise network, it is easy to focus on the monthly fee rate. Yet what that fee is calculated on matters just as much. The loosely defined term ‘turnover’ can mean different amounts to the brand owner, the franchisee and the accountant. Before presenting an offer to your first franchisees, define the fee calculation base and test it against actual transactions from your business.

1. First, establish what the fee covers

The ongoing fee may cover the use of your business model and brand, along with agreed support. Its structure should reflect what you actually provide to the franchisee. Keep it separate from the initial fee, marketing levy and charges for additional services. This helps prevent the same cost from slipping unnoticed into several billing items.

Prepare a simple table showing each charge, what it covers, how it is calculated, its payment deadline and the relevant billing document. If some services carry an additional charge, specify which are compulsory and which the franchisee can choose to order. This table also helps head office assess whether fee income will cover the cost of the promised support.

Poland has no separate statute comprehensively regulating franchising, nor any specific statutory franchise fee rate. A franchise agreement is an ‘unnamed contract’ — one not defined as a distinct contract type by statute — governed primarily by the Polish Civil Code, including the principle of freedom of contract under Article 353¹. That freedom is subject to limits arising from legislation, the nature of the legal relationship and principles of social coexistence. Tax rules, competition law and intellectual property law also matter. A lawyer should therefore review the agreed fee structure, while an accountant should check its tax treatment.

2. Define the calculation base rather than simply using ‘turnover’

A clause stating that ‘the fee is a specified percentage of turnover’ leaves basic questions unanswered. Does it mean sales including or excluding VAT? Is a transaction counted when the sale is made, the invoice is issued or payment is received? What happens to an unpaid invoice? These choices should be deliberate and workable within your sales system.

Your definition of the calculation base should cover at least:

• VAT: state clearly whether the base includes this tax; keep this separate from the question of VAT on the franchise fee itself.
• Discounts: specify whether the amount before or after the discount counts, and how to treat contributions from head office towards promotions.
• Returns and adjustments: establish when these reduce the base and what supporting documents are required.
• Deposits and advance payments: decide when to include them so that the fee is not charged again when the service is provided.
• Unpaid receivables: specify whether a customer's failure to pay affects the fee calculation and what happens if the money is subsequently recovered.

Do not automatically equate money received into a bank account with sales. An owner's contribution, a loan or a returned security deposit is not a customer's payment for goods or services. Conversely, sales proceeds handled by a payment provider may reach the account after its commission has been deducted.

A well-drafted definition allows two people to calculate the same amount independently. If they need a verbal explanation from the brand owner, the wording needs further work.

3. Set rules for platform sales and voucher redemption

In a business operating across several channels, the greatest uncertainty often arises where outlets, the online shop and intermediaries overlap. Before introducing a percentage-based fee, map the order process: who makes the sale, who collects the money, who fulfils the order and who handles any return.

For sales through an intermediary platform, establish whether the base is the value of the sale to the customer or the amount remaining after the platform's commission. Neither option should be chosen simply because a particular report is easier to download. The financial effect of the choice must be clear in the franchisee's calculations.

If head office takes an order and the outlet merely hands it over, do not automatically assume that the full order value is the franchisee's turnover. The fee structure must reflect the agreed allocation of sales revenue and payment for fulfilment.

Address vouchers and gift cards separately. Selling a voucher at one outlet and redeeming it at another can lead to the fee being charged twice or the transaction being missed altogether. Establish when the value enters the calculation base and how settlement between network members works. The tax treatment of vouchers requires a separate assessment; a contractual clause is no substitute for this.

4. Test the calculation before signing the first agreement

Take a completed month from your own business and calculate a hypothetical fee using the proposed rules. Then check unusual cases: a return relating to the previous month, a partial payment, a cancelled order and a transaction through an intermediary. Compare the result with the sales report and accounting records.

Also establish the monthly reporting and billing procedure: the deadline for submitting the statement, the person responsible, how discrepancies should be raised and the deadline for resolving them. Specify how an adjustment made after a period has closed will affect the next amount due. If you plan to charge a minimum fee, show it separately and explain when it applies regardless of sales.

Attach worked examples to the agreement that are consistent with its provisions. Set out the rules for changing the rate or calculation base in advance; do not leave them to a vague reference to future head-office decisions.

Practical takeaway: before choosing a percentage, agree on the definition of the calculation base and test it using your own data. A transparent fee is one the franchisee can check independently.