Franchise pricing and discounts: what to check before you buy

A well-known brand may attract customers with uniform pricing and regular promotions. But for a prospective franchisee, the key question is different: will each sale still be worthwhile after discounts, intermediary commissions and mandatory payments? Consistent rules across a franchise network help maintain a recognisable offer, but individual operators’ costs vary. Before buying, establish who controls your outlet’s prices and who pays to deliver the network’s advertising promises.

1. Establish who is entitled to set prices

In Russia, commercial concession agreements are specifically regulated by Chapter 54 of the Russian Civil Code. The absence of a separate contract category called a ‘franchise’ therefore does not mean that franchising is unregulated. Article 1033 of the Civil Code permits a contract to require the user of the rights to sell or resell goods, carry out work or provide services at prices set by the rights holder.

You should therefore not assume that an outlet owner is always free to set prices. Equally, joining a brand does not in itself replace an agreed contractual provision. Read the specific obligations: ‘recommended price’ and ‘mandatory price’ have different practical implications.

Ask the franchise seller to show you not only the main contract, but also the documents it refers to: the pricing policy, promotion rules and loyalty programme. Establish which version applies and how it becomes binding on you.

If the relationship is structured through a licence or a mixed agreement, do not automatically apply the rules on commercial concessions. Whether restrictions are permissible depends on the substance of the transaction and the applicable rules, including competition law. This requires a separate legal review; the document’s title alone is not a reliable guide.

2. Map out discounts and sales channels

Ask the franchisor to describe every situation in which a customer pays less than the standard price. Do not limit this to seasonal sales: revenue can also be reduced through promotional codes, loyalty point redemptions, gifts, product bundles or special offers in the app.

For each mechanism, draw up a short table with the following columns:

• who decides to launch it;
• whether participation is compulsory or voluntary;
• which goods, services and outlets are included;
• who funds the discount or gift;
• whether several benefits can be combined;
• who collects the money and transfers it to your company;
• when settlement takes place and what documents support it.

Review sales through the brand’s website, app and third-party platforms separately. A customer may place an order centrally, while your outlet is responsible for fulfilling it. In that case, you need to know not only the advertised price, but also how much you will actually receive after all deductions.

Also check how loyalty points and gift vouchers work across outlets. If a customer earned points with another member of the network, who reimburses you when those points are redeemed at your outlet? If the franchisor sold a gift voucher, what arrangements ensure that your company is paid for honouring it? These settlement procedures should be documented, not left to a manager’s discretion.

3. Check the economics of a specific promotion

Request an example of a completed promotion and an anonymised financial breakdown for a participating outlet: the standard price, actual discount, number of sales, direct costs and reimbursements. This is a due diligence request, not a claim that the seller is obliged to disclose all internal financial information.

Calculate the result separately for the product or service to be promoted. A useful starting point is:

Sales proceeds + confirmed reimbursement − purchase cost or direct costs − variable expenses − sales-related payments.

Variable expenses may include packaging, delivery, card processing fees and platform commissions. Work with an accountant to calculate the tax burden for your particular payment arrangements. Separately, check how the discount affects the basis for calculating royalties: actual revenue and the value at the original list price are not the same thing.

A positive result does not yet mean that the outlet is profitable: rent and other fixed costs still need to be covered. A negative result, however, shows that increasing promotional sales could increase losses.

Do not accept a promise that ‘you will make money on additional purchases’ without checking it. Ask for evidence of the related purchases customers actually made. Assess a scenario in which the customer buys only the promotional item and reimbursement arrives after payment to the supplier is due.

4. Agree the terms of participation before signing

Discuss contractual limits in advance. A right to opt out of a promotion or receive reimbursement does not arise automatically: these arrangements must be agreed.

Propose including provisions covering:

• how much notice must be given before a promotion starts;
• the information that notice must contain, including the price and source of funding;
• the procedure for agreeing an individual outlet’s participation;
• a cap on the franchisee’s spending on discounts and gifts;
• reimbursement deadlines and documents supporting the calculation;
• what happens if an incorrect price appears in the app or an advertisement;
• the procedure for reconciling sales records and correcting discrepancies.

If the brand insists on compulsory participation, propose discussing reimbursement or exceptions agreed in advance. For example, unavailable stock or an inability to deliver to a particular area should lead to a clear, agreed outcome rather than a dispute after advertising has begun.

Check that the documents are consistent: permission to opt out of a promotion in correspondence is of little use if the signed contract requires unconditional compliance with all promotional instructions. Include the final agreement in the contract or a properly executed schedule.

Practical takeaway: before buying a franchise, calculate the financial outcome of one typical promotion and one maximum-discount scenario. Sign only once it is clear who sets the price, how much your outlet receives and who covers the difference.