Franchise: Who decides the price of franchised products?

When a company decides to grow through a franchise system, one of the most frequent questions that arises regarding the contract is: who sets the price of the products or services sold by the franchisee?

The answer is clear: prices must be determined by the franchisee. The direct imposition of prices by the franchisor is considered a restrictive practice of competition and is therefore illegal.

Recommendations and maximum prices

The franchisor may recommend a sale price or even establish maximum prices, provided that the franchisee retains the final decision regarding the retail price.

If the franchise agreement includes a clause granting the franchisor the power to impose sales prices, that clause is null and void. Its enforcement could lead to a complaint and even to the termination of the contract.

Similarly, forcing the franchisee to apply promotions designed by the franchisor is considered a disguised form of price fixing, which also constitutes a prohibited practice.

Can the franchisor control the franchisee’s activity?

Although the franchisor cannot set prices, they do have mechanisms of control and supervision over the franchisee’s activity. This right seeks to ensure compliance with the contract and protect the brand’s image.

The franchisor’s main control powers include:

• Right to periodic reporting, especially when the agreement sets royalties as a percentage of sales.

• Regular inspections of premises, transport vehicles, products, and services provided.

• Access to accounting and tax documentation related to the operation of the franchised business.

This control is not unlimited but does guarantee that the franchisor can verify that the business management complies with the quality standards and regulations established by the brand.

Conclusion

For companies, SMEs, and entrepreneurs interested in the franchise model, it is essential to understand that:

• The franchisee is responsible for setting product or service prices.

• The franchisor may only recommend or establish maximum prices, never impose them.

• The franchisor is entitled to control and supervise the franchisee’s activity within legal and contractual limits.

Understanding these aspects before signing a franchise agreement helps prevent conflicts and fosters a solid and balanced relationship between both parties.