Rebates
What it means
When a network buys stock, equipment or services in bulk, suppliers may pay the franchisor a rebate, commission or other benefit tied to how much the network buys. Because franchisees generate that volume through their own purchasing, rebates are a point of potential conflict of interest.
The Franchising Code of Conduct requires franchisors to disclose in the disclosure document whether they, or an associate, receive rebates or other financial benefits from suppliers to the network, and whether those benefits are shared with franchisees. This lets franchisees see who benefits from where they are required to buy.
Rebates are not automatically improper, but they can influence which suppliers a network uses and the prices franchisees pay. Transparency about their existence and destination is the protection the Code provides.
In practice
During due diligence, read the rebate disclosure carefully. Look for whether rebates exist, roughly how material they are, and whether any part is passed back to franchisees or retained entirely by the franchisor.
Rebates can affect your real cost of goods. If a franchisor earns rebates on supplies you must buy at set prices, the effective margin the network takes can be higher than the stated royalty and levy suggest.
A real example
A franchisor negotiates a 4% volume rebate from a national packaging supplier that all franchisees are required to buy from. Across the network this generates a significant sum for the franchisor, which the disclosure document must reveal, including whether any of it is returned to franchisees or kept by the franchisor.
Rebates — FAQs
Are supplier rebates to franchisors legal?
Yes, but they must be disclosed. The Franchising Code requires franchisors to state whether they receive rebates or other benefits from network suppliers and whether these are shared with franchisees.
Do franchisees receive a share of rebates?
Sometimes. Whether any rebate is passed on varies by network and must be disclosed. In many systems the franchisor retains the benefit in full.
Why do rebates matter to a franchisee?
They can influence which suppliers you must use and the prices you pay, and they represent an additional way the franchisor earns from your business beyond the royalty and levy.
Where are rebates disclosed?
In the franchisor's disclosure document under the Franchising Code of Conduct, which must address rebates and other benefits received from suppliers to the network.
See the full franchise glossary, the Fee Index or our buyer guides.