How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Canadian franchises, like many other businesses, use discounts, sales and promos to bring in customers and gain an edge over the competition. Whether it's an occasional two-for-one promo or discounts for students or seniors, many brands know that people love to save money.
Attracting customers with great deals is a proven tactic, but you still should wonder how the discounts will cut into your revenue as a franchisee. To help get a clearer idea, ask your prospective Canadian franchise the following questions about these promos and how they will affect your business.
How will promos hit my profitability?
Franchisor discount programs aimed at the general public can help or hurt franchisees on the individual level. A solid system will have negotiated in advance with suppliers for better pricing on promo products, and this also indicates they have a strategy for that sale. The preferred approach is usually when the franchisor presents the plan to the franchisees and asks for a buy-in and commitment to the program, as this makes the franchisee aware of the strategy and the reasoning behind the sale.
Are royalties based on the regular or sale price?
Many franchisors impose a royalty on gross revenue, so ask whether lower prices mean a lower royalty. Some franchisors may offer royalty breaks entirely on promo programs, but this is usually only offered when the franchisor has a deal for reimbursement in place with the supplier, as is sometimes the case with a deep discount situation.
Can I run my own sale?
Your ability to run any promo of your own depends on the franchisor, so be sure to check the franchise agreement. One or two franchisees offering their own sales can jeopardize a system, so even if your franchisor allows you to run your own sales, it may retain the right to approve them first.
Do I have to run a promotion?
A well-run franchise won't let a franchisee opt out of a promo. Most franchise agreements contain strict terms that require you to be part of these programs. However, if your franchisor is running a promotion that proves to put your business at a loss, you may be able to fight the terms based on those grounds.
Given how important the bottom line is in any business, it pays to find out how your franchisor's promos could impact your business. As always, do your homework before signing onto any franchise.
