Ongoing franchise fees: how to set them in Slovenia

An ongoing franchise fee is not simply a percentage copied from another offer. It must enable the franchisor to meet its obligations to the franchise network over the long term, while leaving the franchisee with a commercially viable business. Before signing your first agreement, define what the fee covers, when it becomes payable and what happens if sales differ from the forecast.

1. First, define what the franchisee pays for regularly

The initial franchise fee and the ongoing fee serve different purposes. The former may cover agreed start-up activities, while the latter covers continued use of the business concept, rights and services throughout the relationship. What each fee includes is not self-evident: you must define it and explain it clearly to prospective franchisees.

Draw up a list of the franchisor’s ongoing obligations. These might include maintaining business know-how, developing the product or service offering, providing agreed advice and giving access to specified tools. For each item, state whether it is included in the ongoing fee or charged separately.

Distinguish clearly between:

• the ongoing franchise fee;
• contributions to shared marketing;
• subscriptions to third-party software;
• payments for goods, materials and equipment;
• additional services ordered separately by the franchisee.

Do not describe a service as included and then charge extra for it without a clear basis. Prospective franchisees need to understand the total recurring cost of the arrangement, not just the most prominent percentage in your presentation.

2. Choose a calculation method that reflects the economics of the model

Charging a percentage of an agreed sales base links the fee to the volume of business. However, turnover alone does not show how much the franchisee retains after purchasing costs, wages and rent. A high-volume, low-margin business can bear a different level of fees from a service business with a different cost structure.

A fixed monthly amount makes planning easier, but places a greater burden on the franchisee during the early months or seasonal downturns. It gives the franchisor more predictable income, but does not guarantee that the amount will cover growing support needs.

Combining a percentage with a minimum fee requires particular care. When turnover is low, the minimum payment can become a much greater burden than the advertised percentage suggests. If you include one, show prospective franchisees its impact under a weaker trading scenario too.

You can also phase in the fee. In that case, set objective start and end points for the concession, for example by linking it to an agreed period after opening. Avoid promising to adjust the amount “as you see fit”: both parties need predictable rules.

3. Test viability for both parties

Do not base your calculations solely on a successful month at your own outlet. Prepare expected, weaker and seasonally unfavourable trading scenarios. In each one, check the franchisee’s financial result after all mandatory payments, as well as the cash left to fund day-to-day operations.

Include the cost of a manager’s work at a market rate. If the business only makes a profit because the owner works without adequate pay, the fee is based on a misleading picture of its performance. The same applies if your own outlet benefits from premises or administrative support on terms that will not be available to a new franchisee.

Then look at the calculation from the other side. How much time and direct expenditure will you need to fulfil your obligations to one franchise outlet? Which costs arise separately for each outlet, and which are shared across the network?

If the fee does not cover your promised obligations at a realistic level of trading, a higher percentage is not automatically the answer. You may need to simplify support processes, change what you offer or postpone expansion. Future franchisees must not become a means of funding promises that the business model cannot sustain.

4. Set out the calculation rules within Slovenia’s legal framework

Slovenia has no dedicated franchise law or statutory general tariff for franchise fees. A franchise agreement is an innominate contract, meaning it is not a specifically defined contract type, and is governed by the general provisions of the Slovenian Obligations Code (Obligacijski zakonik, OZ). Freedom of contract is limited by mandatory rules and moral principles; the principle of good faith and fair dealing is also important.

There is no specific statutory requirement for a franchise disclosure document. That is no reason to present costs unclearly. Before signing, give prospective franchisees an understandable explanation of how fees are calculated, together with a worked example. Put the agreement in writing, also taking account of the OZ rules requiring licence agreements to be in writing where the arrangement includes a licence.

For percentage-based fees, specify how VAT, discounts, returns, cancellations and sales through intermediary platforms are treated. Clarify whether platform commissions reduce the contractual fee calculation base. Set out the calculation period, payment due date and procedure for subsequent adjustments.

Check the tax treatment with an accountant, taking into account the specific transaction and the status of the parties. For changes to the fee, define a clear mechanism, conditions and notification procedure. An open-ended clause allowing the franchisor to change the price at any time is not a sound basis for trust.

Practical takeaway: before making your first offer, prepare a one-page fee schedule, a worked fee calculation and a test of weaker trading conditions. If prospective franchisees cannot use these to understand their payment obligations independently, the rules are not yet clear enough for signing.