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As a franchisee, you must adhere to the terms of your franchise agreement. This legally binding document forms the basis of your franchise relationship and sets out your roles and responsibilities. Franchisors typically set provisions around minimum performance standards within the agreement. Minimum performance provisions are clauses that set specific performance benchmarks you must meet. Otherwise, the franchisor may terminate the franchise agreement. This article will explain minimum performance provisions and the potential implications for franchisees.
What Are Minimum Performance Provisions?
Within the franchise agreement, franchisors tend to stipulate that their franchisees must meet minimum performance criteria. These provisions set criteria for the lowest standards you must achieve. If you have minimum performance standards, you must meet them to continue running your franchise business and avoid breach of contract.
Examples
The following table outlines specific requirements a franchisor might include.
| Requirement | Explanation |
| Sales Targets | The franchisor might set specific revenue goals you must achieve within a certain period, such as monthly, quarterly or annually. |
| Customer Acquisition | You might need to meet a minimum benchmark for the number of new customers you secure in a certain period. |
| Operational Standards | The franchisor might require you to adhere to specific operational procedures and quality standards. These provisions help franchisors ensure a consistent customer experience across all franchise locations. |
| Marketing and Promotion Efforts | They might set expectations regarding local marketing and promotional activities to attract and retain customers. |
These provisions help the franchisor maintain uniformity and quality across their franchise network while ensuring franchisees maintain a certain level of business activity. They also provide clear performance expectations and goals for you.
Some franchisors will provide each franchisee with a unique set of targets, tailoring them based on resources, location and market. Other franchisors might set the same standards across their network. Alternatively, you might collaborate with your franchisor to establish these performance provisions. You might negotiate them when setting the terms of your franchise agreement or throughout the agreement alongside performance reviews.
What Will Happen if I Fail to Meet the Performance Standards the Franchisor Requires?
Failing to meet these minimum performance standards can have significant consequences. However, the particular consequences you may face differ from those another franchisee in a different franchise system would face.
The franchisor should clearly outline what will happen if you fail to meet the minimum performance standards in the franchise agreement. If you consistently fall short of the standards, the immediate consequences might include monitoring and review meetings with the franchisor. Remember that factors beyond your control may impact your performance; your franchisor should consider these. They should ensure you have sufficient support and a plan to rectify your business’s performance.
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However, depending on the duration and severity of your failure to meet the franchisor’s standards, they may terminate the franchise agreement. Therefore, it is crucial that you thoroughly read and understand these provisions before entering into a franchise agreement. Before signing, you should assess whether the targets are realistic and achievable, given your local market and available resources.
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Key Takeaways
Franchisors often include minimum performance provisions in the franchise agreement or operations manual. These provisions set the standards that franchisees must meet. They act as a form of quality control for the franchisor. By implementing minimum standards, franchisors can ensure their franchisees maintain base levels of business activity and promote network-wide consistency.
Falling short of these obligations can lead to consequences. When you initially fall short of the standards, your franchisor might begin to monitor your performance more closely. At this time, they should also provide sufficient support to enable you to improve your performance. If you continually fall short of these standards, the consequences can be severe, and the franchisor might terminate your franchise agreement.
If you are a prospective franchisee, you must thoroughly read the documents a franchisor provides you before signing the franchise agreement. You should understand the specific performance provisions that the franchisor has set. You will find these within the franchise agreement or operations manual. If you are unsure how achievable these standards are, speak to your franchisor. You might negotiate the terms of the agreement if they are too severe or set out-of-reach expectations.
If you would like advice about the performance provisions in your franchise agreement, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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