Franchise Agreements, Franchisee Rights and the Introduction of "National Accounts" in a Franchise System

As service and product based franchise systems (such as home repair, computer support and ink suppliers) develop and expand their franchise base across the nation, issues arises as to a franchisors procurement of "national accounts" and how the terms of any agreed upon "national contract" will affect the revenues and profitability of franchisees.

In a recent article on this topic, "Franchisees Balk at Handyman Plan", Wall Street Journal columnist Richard Gibson discusses Mr. Handyman International, LLC's negotiation and introduction of a national service account contract with Wyndham Hotel Group. Mr. Handyman International, LLC, as franchisor, is negotiating and implementing a contract providing for repair services to be provided by its franchisees to certain hotel properties of Wyndham Hotel Group.  

For franchisees the introduction of a national accounts may represent added revenue and profit opportunities.  However, the "devil is in the details" and the terms of any "national contract" must be closely examined by franchisees.  Some important factors for franchisees to consider, include:

• Does the existing franchise agreement "carve out" national accounts from the franchisees "protected territory";
• How will national accounts located within a particular franchisees territory be services;
• Does the "national account contract" fix fees and are the agreed upon fees profitable for franchisees;
• Does the franchisor require a higher royalty on fees generated from "national accounts";
• Will franchisees be required to "bid" on servicing national accounts;
• What fees will the franchisor charge for managing national accounts.

Selecting a Franchise based on a "Discounted Franchise Fee" is a Big Mistake

In the current economic climate, without question, franchisors have been more willing to compromise and negotiate the terms of the franchise agreement and the agreed upon fees to be paid.  In particular, I am aware of franchisors who have "discounted" and reduced their franchise fee as an inducement for buying a franchise.  Likewise I have reviewed alleged "articles" and blog posts from attorneys who mention that "reduced franchise fees" may be a reason why now is a good time to invest in a franchise.

While now is the time to negotiate a better agreement with prospective franchisors, if you are investing in a franchise because you could get "a good deal on the franchise fee" you are making a big mistake. Franchise fees are designed to compensate a franchisor for the license and rights that it is granting and to cover the costs of training and assisting new franchisees.  If a franchisor is "discounting its franchise fee" you should be questioning "why" and how these discounts may pressure the franchisor to take shortcuts in training and supporting franchisees.  

Choosing between franchisors based on whether or not you get a discounted fee can be a big mistake that may cost you much more in the future.  While discounts sound good, select a franchise based on fundamentals such as the strength of the franchisor's trademarks, business systems and opportunity for future success.