Buying a Franchise in South Africa: Performance Target Checks

A franchise can suit your budget and interests yet still come with performance targets that are difficult to achieve. Before joining South Africa’s franchising community, find out exactly how the brand will measure your outlet’s success. The key question is not simply whether a target looks reasonable, but whether its calculation, evidence and review process are clear enough for you to assess before committing.

1. Separate forecasts from binding targets

A sales forecast in a presentation is not necessarily the same as a minimum turnover requirement in your agreement. Equally, a reassuring description of a target as ‘only a guideline’ should not override wording that makes it compulsory.

Ask the franchisor to identify every binding performance requirement and where it appears. These might include minimum sales, customer satisfaction scores, service times, stock availability or inspection results. Establish which are contractual obligations and which are management tools used to help outlets improve.

Create a simple schedule showing:

• The target and its precise definition.
• The period over which it is measured.
• When it starts applying to your outlet.
• The source of the measurement data.
• Who reviews the result and handles disagreements.

Clarify ambiguous terms. Does ‘sales’ mean turnover including or excluding VAT? How are refunds, discounts and cancelled orders treated? Does an online order count towards your outlet if another location fulfils it?

Ask for these answers to be reflected in the relevant contractual documents. An informal explanation is not a substitute for a clear obligation.

2. Test the target against your proposed outlet

A network-wide target may conceal significant differences between locations. A mature shopping-centre outlet and a newly opened neighbourhood business may have different trading patterns, customer demand and capacity.

Request the evidence used to set the proposed target. Ask whether it reflects comparable outlets, how long those outlets had been trading and whether unusual periods were excluded. You are seeking a sound basis for the obligation, not merely an attractive example of what the best-performing location achieved.

With your accountant, translate any sales requirement into practical activity. How many transactions would you need each trading day? What average customer spend does that assume? Could the premises, equipment and staffing realistically accommodate that volume?

For service or quality targets, examine the measurement method. A customer score based on a handful of responses may be volatile. An inspection result can be difficult to challenge if the scoring criteria are not shared in advance.

Ask how the agreement treats opening delays, seasonal trading and interruptions such as electricity outages. Do not assume that circumstances outside your control automatically suspend a contractual target. Any allowance, adjustment or review mechanism should be clear.

3. Check who can change the rules

A manageable target can become a different commitment if the franchisor has broad powers to increase it or change its calculation.

Read provisions allowing changes to standards, benchmarks and reporting requirements together. Ask whether the franchisor can introduce new performance measures during the agreement and whether those changes require notice, consultation or your consent. These are points to investigate and negotiate, not rights to assume.

Also establish whether performance is assessed from records you can inspect. If a central system produces your score, can you obtain the underlying transactions or inspection findings? Is there a process for correcting errors before the result is treated as final?

Ask for a worked example showing how an outlet’s monthly result is calculated and reviewed. Then request an explanation of what happens after a missed target: who contacts you, what evidence is considered and whether an improvement plan is available.

A clear review process helps both parties distinguish weak performance from faulty data or an unrealistic benchmark. It also makes the commercial relationship easier to manage.

4. Use South Africa’s legal protections before signing

South Africa specifically regulates aspects of franchising through the Consumer Protection Act 68 of 2008 (CPA) and its regulations. Regulation 3 requires a prospective franchisee to receive the prescribed disclosure document at least 14 days before signing the franchise agreement.

Use that period to compare the opportunity described in the disclosure material with the performance obligations in the proposed contract. Raise inconsistencies in writing rather than assuming the more favourable description will prevail.

Section 7 of the CPA requires franchise agreements to be in writing, signed by or on behalf of the franchisee, and expressed in plain and understandable language, with the prescribed information. Section 48 addresses unfair, unreasonable or unjust terms. However, a demanding target is not automatically unlawful merely because it is difficult to meet.

Have a South African lawyer experienced in franchising assess unclear calculations, broad amendment powers and disputed-score procedures before you sign. Ask your accountant to assess achievability separately: legal clarity and commercial realism are different tests.

Practical takeaway: Do not accept a performance target until you can explain how it is calculated, why it suits your outlet, who can change it and how an incorrect result can be challenged.