Buying a franchise: check the binding sales targets

Before buying a franchise, check whether the sales targets presented to you are simply projections or binding obligations that could put your business at risk if you fail to meet them. The distinction matters: an outlet may cover its costs yet still fail to meet its contractual requirements. When joining a franchise network, assess not only the appeal of the brand, but also the performance standards you will have to meet and the consequences of falling short.

1. Distinguish sales forecasts from binding minimums

Presentations may use terms such as expected turnover, annual plan, recommended target and minimum sales. Do not treat them as interchangeable. Ask for written clarification of which figures are for information only, which are used to monitor performance and which constitute contractual obligations.

Review the agreement, its appendices and the operations manual. Look for provisions allowing targets to be set later. The agreement may contain no specific amount when you sign, yet allow the franchisor to set one subsequently. In that case, the key questions are what criteria the franchisor must use and what limits apply.

For each binding target, make a brief note of:

• what is measured: revenue, number of orders, units sold or another result;
• the period it covers;
• when it takes effect;
• who verifies the result achieved;
• what happens if the target is not met.

Ask specifically whether the target applies to each outlet individually or to all your outlets combined. A weaker result at one location will not necessarily be offset by a stronger result at another unless the agreement allows this.

2. Check the calculation and whether the obligation is achievable

A binding target must be precise enough for you to check for yourself whether you have met it. For revenue targets, clarify how VAT, discounts, returns, cancelled orders and gift voucher sales are treated. Also establish how online orders are allocated when they are placed through the central website but fulfilled by you.

Ask for a worked example using an actual case, anonymised if necessary. If the agreement uses the term ‘net sales’, it should be clear which items are deducted. Do not rely on verbal assurances that the accounts team already understands the term.

Next, translate the target into operational requirements: how many purchases you need per trading day, the average transaction value required and the workload your team must handle. This will help you identify whether the agreement assumes a level of capacity that your premises or staffing cannot support.

Check how the target is spread across the year, too. An annual target divided evenly across the year may not reflect seasonal trading patterns. For a new outlet, propose phasing in the obligation rather than applying the same standard as an established location from opening day.

Prepare a base-case scenario and a downside scenario. The aim is not to predict the future with certainty, but to identify when the gap between actual sales and the contractual minimum would become a problem.

3. Agree rules for changing targets

Slovenia has no specific franchising law, mandatory franchise register or dedicated statutory pre-contractual franchise disclosure document. A franchise agreement is an unnamed contract — one not specifically defined as a separate contract type in law — governed by the general rules of the Slovenian Obligations Code (OZ), including the principle of good faith and fair dealing and the rules on performing contractual obligations.

The law therefore neither sets a specific minimum sales requirement for franchises nor automatically entitles you to an adjustment when sales are weaker. You need to check the agreement carefully for the rules on setting and changing obligations.

Propose a clear process for setting annual targets: advance notice, an explanation of the proposal and an opportunity to comment. If increases follow a formula, insist that its inputs are clearly defined. Also clarify what happens if you cannot agree on a new target.

Make specific provision for circumstances outside your control, such as a prolonged outage of the central ordering system or the unavailability of key products. The agreement could allow the affected period to be excluded or the target to be adjusted proportionately. These are points to negotiate, not automatic statutory rights. A lawyer should also check that these provisions are consistent with the rest of the agreement.

4. Assess the consequences, not just the target

The same minimum sales requirement can carry very different weight depending on the consequences of missing it. Check whether it triggers additional reporting, a mandatory remedial action plan, the loss of a particular contractual benefit or the possibility of termination. It also matters whether one weak period is enough to trigger these consequences or whether performance is assessed over a longer period.

Insist on a transparent process for determining whether a target has been missed. Before any consequences are applied, you should have an opportunity to check the data and flag errors in the allocation of sales. Specify who will review any objection and how the final finding will be documented.

If the agreement provides for an additional payment, ask a lawyer to check its legal nature and whether it is legally permissible. Do not assume that a clause is beyond challenge simply because the payment is labelled a ‘fee’. Calculate the combined impact as well: regular payments may remain due even when sales fall, while additional measures can increase the burden.

Practical takeaway: before signing, make sure every binding sales target has a precise calculation method, rules for adjustment and clear consequences. Accept the obligation only once you understand how it will work during a weaker trading period.