How Should Sales Targets Be Set in a Franchise Agreement?

When preparing to franchise your existing business, it is tempting to use your own outlet’s turnover as the target for every new location. Yet businesses operating under the same brand may have different customer bases, launch conditions and sales capacity. For sustainable growth across a franchise network, a sales target should be more than an obligation imposed on the franchisee: it should be a shared performance benchmark, with clear conditions and support for achieving it. This guide focuses on drawing up a realistic, workable minimum sales obligation for a franchise agreement in Turkey.

1. Distinguish sales forecasts from binding obligations

The first step is to identify the different purposes of figures that may appear in the same table. A sales forecast indicates a likely outcome based on specified assumptions. An operational target is the level both parties will work towards. A minimum sales obligation is a commitment intended to have contractual consequences if it is not met. Do not use these three terms interchangeably.

For example, serious uncertainty arises if an optimistic sales scenario in the opening budget becomes a mandatory minimum in a schedule to the agreement without explanation. Alongside each figure, state its status, the period it covers and the assumptions behind it. Use the same definitions in discussions with prospective franchisees.

Turkey has no dedicated law exclusively governing franchise agreements. Nor is there a general requirement specific to franchising for a pre-contract disclosure document or a contract registration system. However, this does not mean that freedom of contract is unlimited. The general provisions of the Turkish Code of Obligations No. 6098, the Turkish Commercial Code No. 6102 and other general rules, depending on the nature of the relationship, apply. Sharing information in good faith during negotiations remains important.

Pre-drafted standard clauses on targets should also be assessed under the Turkish Code of Obligations’ provisions on standard contract terms. In particular, have a lawyer review any clause giving the franchisor unrestricted power to increase targets unilaterally. The fact that a clause has been signed does not necessarily make it valid and enforceable in every case.

2. Base targets on data from comparable businesses

The success of your existing business is a valuable starting point. However, the founder’s day-to-day involvement, an established customer base or a favourable location may not be replicated in a new franchise outlet. When calculating targets, distinguish between conditions that can be reproduced and those unique to the existing business.

Include the following in your benchmarking file:

• Days open and daily operating hours.
• Sales floor area, service capacity and transaction numbers.
• Average transaction value and the mix of products or services sold.
• Seasonality, local demand and the process of building a customer base after opening.
• Campaigns, product availability and technical support provided by the franchisor.

Do not turn a single strong month’s sales into an annual target. Use comparable periods, and assess the launch period separately from established trading. The time allowed for the new business to build its customer base should appear as an explicit period in the target timetable, rather than merely as a recommendation.

Nominal turnover growth alone may not indicate stronger performance. Price changes can push turnover up even as transaction numbers fall. Assess sales value alongside supporting indicators such as transaction numbers or capacity utilisation. Specify which supporting indicators are for assessment purposes only, so that you do not inadvertently create additional contractual obligations.

Finally, do not make targets unconditional if they depend on franchisor support. If product availability or the launch of a particular sales channel is a key assumption behind the calculation, specify how any failure to fulfil that assumption will be assessed.

3. Clearly define the calculation and revision methods

Phrases such as “achieving sufficient sales” are not measurable. The agreement or its target schedule should define which records will be used to calculate sales and the period covered. Establish a common calculation method for handling taxes, cancellations, returns, discounts and transactions for which payment has not been received.

For online orders, it is particularly important to determine which outlet receives credit for the sale. An order may be taken centrally but fulfilled by a local outlet. Set an allocation rule that prevents the same transaction from being counted twice or omitted from every outlet’s performance figures. Treat this rule separately from the basis for calculating franchise fees; the two calculations do not necessarily need to be identical.

The target schedule should include, at a minimum: the start date, assessment period, data source, calculation definition, procedure for requesting corrections and method for revising targets. Record the effective date of each revision to prevent the parties from working with different figures.

A sales obligation must not become an indirect means of imposing the prices the franchisee charges. Clauses affecting pricing or other conditions of competition should be reviewed separately under Turkey’s Law No. 4054 on the Protection of Competition and the applicable competition rules. Setting sales targets and fixing resale prices are different matters.

4. If a target is missed, first identify the cause and the corrective action

Do not automatically treat a missed target as evidence of the franchisee’s inability to run the business. A fall in local demand, prolonged product shortages, an outage in the franchisor’s software or problems with the outlet’s own practices require different responses. The review should consider both actual sales and the assumptions on which the target was originally based.

A workable process might include written notification of the shortfall, a joint review of the data and an improvement plan assigning responsibility for each action. The plan should clearly state the action required, the franchisor support to be provided, the completion deadline and the reassessment date. These are suggested working steps, not a uniform franchise procedure required by law.

If failure to meet a target carries contractual sanctions, have their conditions of application and legal validity reviewed separately. Do not assume that a decline in a single period should have the same consequences as a recurring performance problem that remains unresolved.

Practical takeaway: Before signing your first franchise agreement, prepare a one-page target schedule. If you cannot explain the source of the figure, the calculation method, the franchisor support and the steps to take if the target is missed, that figure is not yet ready to become a binding sales obligation.