Setting Franchise Fees in Saudi Arabia: From Costs to Contract

When you decide to franchise your established business in Saudi Arabia, do not start by asking what other brands charge. Start with what you will provide to franchisees and what their outlets can afford without compromising operations. Appropriate fees support an ongoing relationship across the franchise network, rather than simply generating a payment on signing. This guide sets out a practical way to build a fee structure that you can explain and review before bringing the opportunity to market.

1. Turn your commitments into measurable costs

First, separate the cost of preparing your business for franchising from the cost of supporting each new franchisee. Developing the brand’s infrastructure, creating training resources and building a support team are investments that benefit the franchise network over time. Do not assume that your first franchisee should bear their full cost.

List the services you will provide when a franchisee joins: site assessment, design review, initial training, pre-opening assistance and on-site support from your team during launch. For each service, record who is responsible, the expected working hours, travel or outsourcing costs, and whether it is included in the initial fee or invoiced separately.

Then list ongoing services, such as site visits, system updates, performance analysis and training for new staff. Do not put a price on a vague promise of ‘full support’; define what you can actually deliver consistently.

Practical output: A cost sheet that distinguishes between the expense of establishing the franchise programme, the cost of onboarding one franchisee and the annual cost of supporting them. Use it as a basis for pricing, not as a substitute for assessing the value the franchisee receives.

2. Design a clear fee structure without double charging

Your structure may include an initial fee, an ongoing royalty and charges for specific services. Choosing between a fixed amount and a percentage of sales is a commercial decision that needs testing. A fixed amount makes expenditure easier to forecast but may put pressure on an outlet in its early stages. A percentage moves with sales but does not necessarily reflect profitability.

If you choose a percentage of sales, define the calculation basis precisely. Explain how you will treat value added tax (VAT), returns, discounts, orders placed through delivery apps and the commissions those apps deduct. Do not leave ‘net sales’ undefined: each party may interpret it differently.

Also distinguish between the ongoing royalty and the marketing contribution. Explain whether the contribution funds shared campaigns, which local marketing costs remain the franchisee’s responsibility, and how you will report expenditure. Specify how you will charge for technology systems, additional training and support visits outside the usual schedule. A service that is included in a fee should not later appear as an unexpected invoice.

If you sell materials or products to franchisees, show how your supply prices affect the outlet’s financial performance. The definition of a franchise under Saudi law distinguishes franchise fees from amounts paid for goods or services. Nevertheless, franchisees need to understand the full financial burden, not just the name of each charge.

3. Test the fees against the outlet’s and the franchisor’s finances

Build a financial model using actual data from your business, adjusting site, staffing and occupancy costs for the proposed outlet. Include all franchise-related payments, not just the ongoing royalty. Show the cash required before opening and while sales settle into a stable pattern.

Test scenarios with different sales levels, operating costs and timescales for reaching target performance. Ask whether the outlet can meet its obligations while maintaining quality, and whether the franchisor has enough left to deliver the promised support. A fee that looks attractive at launch may become a burden if ongoing support is underfunded.

Pay particular attention to the following situations:

• Falling sales while rent and minimum staffing levels remain unchanged.
• A delayed opening after training and fit-out costs have been incurred.
• Greater reliance on delivery services and the associated commissions.
• An increased need for support visits or retraining at the outlet.

Keep a record of the model’s assumptions, the source of each cost and the date it was reviewed. If you share financial performance information with prospective franchisees, review the relevant disclosure requirements with a specialist. Do not present projected scenarios as guaranteed profits.

4. Document the fees and manage payment timing

Franchise relationships in Saudi Arabia are governed by the Commercial Franchise Law and its Implementing Regulations. The law requires the agreement to state the fees payable by the franchisee, including charges for training and technical support, and the method for calculating payments for goods or services supplied by the franchisor or any person within its group.

Turn your pricing structure into a contractual schedule specifying, for each item, its amount or formula, the corresponding service, its due date, its tax treatment and any refund conditions. Define how fees may be adjusted during the relationship rather than relying on open-ended wording. Then cross-check the schedule against the disclosure document and commercial proposal to ensure that figures and terms are consistent.

Under Article 7, the disclosure document must be delivered at least 14 days before the agreement is signed or any franchise-related payment is made, whichever comes first. Do not assume that calling a payment a ‘reservation fee’ automatically exempts it from this waiting period.

The franchisor must also register the signed agreement and the related disclosure document with the Ministry of Commerce within 90 days of signing. Address responsibility for registration and its costs separately from your commercial fees, and obtain legal and accounting reviews before finalising the documents.

Practical takeaway: Do not finalise your fees until you have three tools in place: a support cost sheet, a model testing the outlet’s ability to pay and a clear contractual fee schedule. Keeping them aligned helps you build a fair, sustainable relationship across the franchise network.