How to Set Franchise Fees and Record Them in the Agreement

When preparing to franchise your existing business, setting fees solely by looking at what similar brands charge is risky. Fees must fund the support you will provide while leaving the franchisee with a sustainable profit. In a healthy franchise network, trust comes not just from the amount charged, but from understanding what it covers and how it is calculated. This guide will help you establish your fee structure before drawing up your first franchise agreement.

1. Base the initial fee on the cost of opening support

Start by listing the services you will provide up to the franchisee’s opening. Site assessment, initial training, set-up coordination, travel for the opening support team and the transfer of operating procedures are separate cost items. Include the time head office staff spend on these tasks; the founder’s unpaid work should not remain invisible in the growth plan.

Record the following for each item:

• The service or deliverable to be provided.
• The person responsible and estimated working time.
• Direct expenses and an allocation of head office overheads.
• What the initial fee covers and which work will be charged separately.

The initial fee need not simply equal the total cost; the economic value of the know-how transferred and the rights granted should also be considered. However, the justification for the fee should not rest on unproven earnings promises.

Keep equipment, fit-out, opening stock and the rental deposit separate from the initial fee. A prospective franchisee’s total start-up cash requirement is not the same as the fee they will pay you. The agreement should also explain which services will be treated as completed, and what refund terms apply, if the opening is delayed or does not go ahead.

2. Test ongoing royalties against both parties’ budgets

Ongoing royalties are commonly structured as either a percentage of turnover or a fixed fee. Choose the approach based on support costs and the business’s ability to pay, rather than ease of collection. A turnover-based fee varies with sales, whereas a fixed fee can place a heavier burden on the business during periods of low sales.

First, prepare the head office budget: what resources are needed for site visits, refresher training, quality checks, software support and product development? Then build the same fee structure into the franchisee’s profit and loss account. Examine what remains after deducting materials, staff costs, rent, energy, delivery commissions and remuneration for the operator’s own work.

Do not rely on a single optimistic forecast. Compare low-sales, expected-sales and rising-cost scenarios. These are projections and must not be presented as earnings guarantees. A structure in which head office can survive only by continually collecting new initial fees may struggle to meet its ongoing support obligations.

If you are considering a minimum monthly fee, clarify how it relates to the amount calculated on turnover. Are both payable, or does the higher amount apply? This distinction directly affects the budget.

3. Put the definition of turnover and the payment process in writing

The phrase “a specified percentage of turnover” is not enough on its own. Define the calculation basis in the agreement’s fee schedule. Clearly state how VAT, refunds, cancellations, discounts, gift cards and online orders will be treated.

For example, the amount a delivery platform transfers after deducting its commission differs from the value of the sale to the customer. Specify whether the royalty is calculated on sales before commission or on the amount after deductions. For gift cards, prevent the same transaction from being counted twice, once when the card is sold and again when it is redeemed.

The fee schedule should also include:

• The calculation period, reporting date and payment deadline.
• The sales records to be used and the reconciliation method.
• Procedures for correcting inaccurate reports and resolving disputes.
• The scope of record inspections and confidentiality rules.
• The consequences of late payment and any method for adjusting fees.

Prepare a worked monthly calculation with your accountant. If two people using the same data cannot arrive at the same amount payable, the wording is not yet clear enough.

4. Keep advertising contributions separate from other fees

Do not use the advertising contribution as an undisclosed extension of the ongoing royalty. Define which activities the shared budget will fund, whether local advertising expenditure is separately required and who will manage the budget.

Set out the scope of agency costs, content production, media buying and any administration costs. Establish rules for carrying unspent funds forward and for handling contributions when a franchisee’s agreement ends. Sharing regular income and expenditure summaries strengthens accountability within the franchise network.

If there are fees for software, mandatory refresher training, inspection travel, transfers or renewals, include them in a single fee schedule too. Explaining how supplier rebates or discounts will be treated also helps align commercial expectations.

5. Adapt the fee schedule to Türkiye’s legal and tax framework

Türkiye has no comprehensive law specifically governing franchising, no general mandatory franchise disclosure document system and no franchise register. This does not mean that agreements are unregulated. Depending on the nature of the relationship, the relevant legislation includes the Turkish Code of Obligations No. 6098, the Turkish Commercial Code No. 6102, the Law on the Protection of Competition No. 4054 and, for trade mark rights, the Industrial Property Law No. 6769.

Standard fee clauses may require legal review under the rules on standard terms and conditions. In particular, rather than relying on an unrestricted right to increase fees unilaterally, specify the criteria, timing and notification procedure for changes. Fixing a franchisee’s resale prices or imposing minimum prices to support the fee model also creates competition law risks.

Tax considerations should take account of the Value Added Tax Law No. 3065 and the Stamp Tax Law No. 488. Review with your accountant whether fees are shown inclusive or exclusive of VAT, how they will be invoiced and the agreement’s stamp tax treatment. Cross-border payments require a separate assessment.

Practical takeaway: Before starting discussions with prospective franchisees, prepare a single fee schedule, a worked monthly calculation and budgets for both parties. Ask your lawyer and accountant to confirm that these three documents reflect the same rules as the agreement.