Pricing and Discounts in a Franchise: How to Set the Rules

In a company-owned business, the owner can change a price with a single instruction. Once a franchise network is launched, that is no longer enough: each franchisee bears their own costs, enters into contracts with customers and is responsible for their own profit. Before selling your first franchise, you therefore need to decide who controls prices and who funds discounts. For a sustainable franchise network, this is not a minor marketing detail but a ground rule for working together.

Distinguish between mandatory and recommended prices

Start by listing the decisions you make in your existing business: standard prices, seasonal discounts, bundles, promotional codes, personalised offers and free extras. For each one, specify who will make that decision at a franchisee’s outlet. Do not cover everything with a clause stating that ‘the franchisee must comply with the marketing policy’: this does not explain the limits of their discretion.

There are three possible approaches in practice:

• Recommended prices. The franchisor provides guidance, while the franchisee sets their own prices. A recommendation must not become a disguised obligation through penalties or threats to withdraw access to services.
• Mandatory prices. The franchisee accepts specific contractual pricing obligations. A lawyer should check whether these are permissible and how they are worded.
• Different rules for different categories. For example, certain goods may be subject to an agreed pricing procedure, while the franchisee prices additional services independently.

Consider website sales, delivery and third-party platforms separately. The cost of fulfilling an order for the same product may vary by sales channel. Specify who is the seller, who receives payment and whose price is displayed to the customer. A shared online shopfront does not turn every outlet into a single legal entity.

Check the contractual and legal limits

Russia has no separate federal law on franchising. However, commercial concession arrangements—the legal framework commonly used for franchising in Russia—are specifically governed by Chapter 54 of the Civil Code of the Russian Federation. The intellectual property provisions in Part Four of the Civil Code also apply, alongside other rules depending on the nature of the relationship.

Article 1033 of the Civil Code allows a commercial concession agreement to require the user of the rights to sell goods, perform work or provide services at prices set by the rights holder. This does not mean that every pricing restriction is automatically lawful. Restrictive terms may be challenged in light of conditions in the relevant market and the parties’ economic position. Federal Law No. 135-FZ ‘On Protection of Competition’ must also be taken into account.

Do not therefore transfer provisions from a commercial concession agreement into an ordinary supply or licence agreement without legal review. The legal assessment depends on the structure of the agreement and the actual relationship, not on the word ‘franchise’ appearing on the first page.

The agreement should specify which prices are mandatory, how they are communicated to the franchisee, when they take effect and how exceptions are agreed. If the details are set out in a separate document, define its status and the procedure for amending it. An operations manual should not, by itself, create obligations that the parties have not agreed.

Federal Law No. 38-FZ ‘On Advertising’ and Russian Federation Law No. 2300-1 ‘On Consumer Rights Protection’ are also relevant when advertising promotions. Information about the duration, participating outlets and restrictions on a discount must be accurate and clear to customers. Network-wide advertising must not promise an offer at an outlet where it is not actually available.

Calculate the promotion’s economics at franchisee outlet level

Before passing your pricing policy on to franchisees, test it against data from your own business. But do not focus solely on revenue growth: a discount can increase order numbers while reducing the money left after variable costs.

Prepare a brief calculation for each promotion. Include the discounted price, the cost of the goods or services, packaging, payment processing and platform fees, delivery and any other costs incurred in making the sale. Factor in royalties using the agreed calculation basis. Then assess how much remains to cover fixed costs and profit.

Test several scenarios: the customer buys only the promotional item; adds an item at full price; or uses the offer instead of making a purchase they would otherwise have made at full price. The last scenario is particularly important: not every promotional order is an additional sale.

Agree how the promotion will be funded. The franchisee may bear the cost of the discount, the franchisor may reimburse part of it, or the parties may agree another form of support. Specify the basis for reimbursement, the supporting documents required and the payment deadline. Do not promise to ‘cover losses’ without defining exactly which amounts will be reimbursed.

If a promotion is profitable for a company-owned outlet because it benefits from a special purchase price, do not assume it will also work for franchisees. First check the terms actually available to them.

Establish a clear process for launching promotions

Before the first network-wide campaign, prepare a promotion brief. This is a working document for the franchisor and franchisee, not a substitute for the agreement. It should include:

• participating outlets, goods, services and sales channels;
• start and end dates;
• the price or method for calculating the discount;
• rules on combining the promotion with other offers;
• funding and reporting arrangements;
• procedures for technical failures or stock shortages.

Assign someone to check the till system, website and advertising materials. Before launch, make a test purchase: is the discount calculated consistently, is the final price displayed correctly, and does the employee understand the offer’s restrictions? It is better to find an error before a customer raises it.

After the promotion, compare the results with normal sales over a comparable period. Assess not only turnover but also the amount remaining after variable costs, staff workload, customer enquiries and complaints, and whether reimbursements were paid on time. Discuss the findings with franchisees: their feedback helps the network improve its shared rules.

Practical takeaway: before selling a franchise, prepare three things: contractual limits on pricing control, a financial calculation for promotions at franchisee outlet level, and a process for launching them. A shared brand requires consistent promises to customers, but it does not justify discounts whose financial impact has not been assessed.