What Price Can Franchisors Charge Franchisees for Products or Services?

The state of Washington has a franchise relationship law that requires franchisors to only charge franchisee fair and reasonable price for products and services that it sell to franchisees. 

State franchise relationship laws establish limitations on franchisors’ right to act cases in terminations, renewals, and defaults.  There no federal franchise relationship laws.  The federal franchise laws only govern the sale of franchises — however, there almost 2 dozen states that have enacted franchise relationship laws. 

The Washington franchise relationship law beckons the question of what is fair and reasonable pricing? In a recent case[i], the Washington Supreme Court gives some insight into considerations of what is a fair and responsible price to charge franchisee for products or services. 

  1. What is the fair market value of the product or services?
  2. What price did the franchise pay for the product or service?
  3. What do competitors charge for the product or service?
  4. Are all franchisees charged the same amount for the same or similar products or services?
  5. What is the franchisor’s profit margin on the product or service?

The court gives this example of unreasonable and unfair pricing:

For example, if the franchisor obtains a product for price x, and the franchisee could only obtain it on the open market for 5x, then selling it at the price of 2x might not be unfair or unreasonable—but if all other similarly situated franchisors are selling it for 1.5x, then the price of 2x may be unfair or unreasonable.

[i] MONEY MAILER, LLC v.  BREWER No. 96304-5 Washington Supreme Court, September 19, 2019