How to Set and Structure an Initial Franchise Fee

When preparing to franchise your existing business, do not set the initial fee simply by looking at what similar brands charge. The fee should clearly reflect the initial rights and services it covers. In a well-run franchise network, prospective franchisees know what they are paying for, and the franchisor knows what it must deliver in return. To achieve this, consider pricing, service scope, payment schedules and the possibility that the business may not open as part of the same planning process.

1. Define what the initial fee covers

The first step is to distinguish the one-off initial franchise fee from other payments. It can be structured to cover joining the network, the initial transfer of know-how and specific preparatory services. However, its boundaries should be clearly distinguished from ongoing support, product supply, advertising contributions and recurring fees for use of the brand.

Prepare a fee coverage table. For each right or service, specify how it will be delivered, who is responsible and what constitutes completion. For example, including initial training does not necessarily mean that all the prospective franchisee’s travel and accommodation expenses are covered. Make this distinction clear from the outset.

Use the table to answer these questions:

• Does the fee apply to just one outlet?
• How many people can attend the initial training, and what will it cover?
• Are pre-opening site visits and opening support included?
• Will software installation and equipment purchases be charged separately?
• Who will pay for adapting the premises design, preparing project drawings and engaging external consultants?

Specify concrete deliverables rather than using broad phrases such as “all-inclusive”. Also distinguish rights granted for the duration of the agreement from services completed on a one-off basis. This will make it easier to assess payments or refunds later.

2. Assess the amount against costs and value

Include the time your head office team spends preparing for the opening when calculating the initial fee. Preparing training, visiting the site, coordinating installation and producing starter materials can all create hidden costs. Record the estimated working time and direct expenses for each task, then compare these estimates with actual figures from completed openings.

It is useful to break the calculation down into three categories:

• Direct expenses: Travel, outsourced services and preparations specific to the prospective franchisee.
• Head office resources: Staff time, training facilities and the infrastructure used.
• Value of joining the system: The value provided by operational know-how, established methods and clearly defined rights of use.

The final category does not automatically justify a high fee. If a business model has not yet been used by another operator or adequately documented, do not present assumed brand value as a certain financial outcome. The initial franchise fee is not a guarantee of earnings.

Assess the fee within the franchisee’s total opening budget as well. A structure that depletes the cash the business needs simply to increase the franchisor’s upfront revenue may undermine the network’s long-term viability. If you offer discounts to different applicants, record the reasons: a narrower scope, the exclusion of a particular service or a clearly defined promotion, for example. A discount should not automatically reduce your delivery obligations.

3. Link payments to verifiable milestones

Collecting the full fee on a single date and splitting it into instalments create different risks. Assess your choice not only against head office’s cash requirements, but also against when rights are granted and services are delivered.

One possible structure could link payments to signing the agreement, completing the initial transfer of know-how and providing the agreed opening support. This is not a mandatory payment model. Choose milestones that reflect your actual preparation process and can be verified by both parties.

For each instalment, specify the payment date, the associated deliverable, the supporting documentation and the consequences of delay. An attendance record may support a statement that “training has been completed”, but it may not, on its own, demonstrate that all training obligations have been fulfilled. The programme and the content delivered should also be documented.

State clearly whether the amount includes or excludes taxes. Confirm invoicing dates, the nature of the payment and its accounting treatment with a qualified accountant. Describing a payment in the agreement as an “advance”, a “deposit” or an “initial franchise fee” does not, by itself, determine its legal or tax consequences.

4. Establish how refunds will be calculated if the business does not open

Türkiye has no specific legislation exclusively governing franchise agreements. Nor is there a general requirement specific to franchising to register on a public register or prepare a prescribed pre-contractual disclosure document. However, contractual relationships are governed by the Turkish Code of Obligations No. 6098, while commercial matters fall under the Turkish Commercial Code No. 6102. Depending on the arrangement, the Law on the Protection of Competition No. 4054 and the Industrial Property Code No. 6769 may also be relevant. The absence of a prescribed disclosure form does not remove duties of good faith and accurate disclosure.

Do not, therefore, treat a clause stating that “the initial franchise fee is non-refundable under any circumstances” as a complete solution. An applicant withdrawing, the franchisor failing to meet its obligations and the necessary opening conditions not being met should not all be treated in the same way. The validity and effect of such a clause depend on the agreement as a whole and the circumstances of the individual case.

For each scenario, identify separately the services already delivered, the rights already granted and any expenses incurred that cannot be recovered. The agreement should explain the refund calculation method, supporting documentation, notice period and repayment schedule. It should also specify the options available to the prospective franchisee where delays are attributable to the franchisor. Have a lawyer review the draft before it is signed.

Practical takeaway: Before announcing the initial franchise fee, complete your coverage table, cost calculation, payment milestones and refund scenarios. Rather than collecting a fee you cannot explain, make what you provide in return measurable.