Franchising: 5 tips for successful contract negotiation

Sebastian Fuschini, vice-president of franchising for Pizza Pizza shares five tips for successfully negotiating a contract and striking a balance between your desires and the requirements of your future franchisee-franchisor relationship.

A successful negotiation is marked by perceived fairness and success on both sides. Both groups seek positive outcomes in a fair and equitable agreement. Such a result will often lead to more of the same over the intervening years and contract durations.

That being said, here are five ways to successfully negotiate a contract and strike a balance between your desires and the requirements of your future franchisee-franchisor relationship.

Never compromise the brand
Your brand is your product’s personality, nothing less. Anything that threatens it, or its good name, threatens the product — whether a failure in performance or service. The moment a client’s expectations are compromised is the moment when the brand will begin to fail. A sure-fire way to compromise your own brand is to undervalue it just to get a deal.

How important is the brand, in terms of accumulated reputation? In the words of business guru Warren Buffett, “It takes 20 years to build a reputation . . . and five minutes to ruin it.” How can this happen? Poor communication, failure to meet promises of performance (service breakdowns), difficult guarantees or warranties. Customers tend to remember and easily recall such failures much more so than situations where things run smoothly.

When your brand takes a hit – no matter what the reason – it is very challenging to recover, so build and protect your product equity.

Always negotiate in good faith
Keep the success of the other party in mind. In other words, build trust and do everything you can to promote it at every turn.  

There is no consistent legal-based definition of what negotiating in good faith entails. Some courts have ruled that “to negotiate in good faith” is illusory and therefore non-binding. Just remember: Without a solid foundation built on trust, the relationship is doomed to fail.

Maintain consistency
Consistency begets credibility and credibility begets integrity. The process takes place in simple steps and is relatively easy to plan and carry out if you have your wits about you and are honest with yourself and your new partner.

One way to ease your task is to realize that both sides are striving for a mutually satisfactory conclusion and agreement. Be consistent and be honest. Know that the other side has done at least as much research into you as you have into them and will quickly realize points where your credibility might be stretched thin.

Don’t misrepresent what you can realistically deliver on
The negotiating philosophy that should be chiselled in stone is under-promise and over-deliver. Make this part of your negotiating mantra and you’ll go far.

There are two risks to not following through on promises. First and foremost, you will most likely lose the client, sooner rather than later. Second, you might retain the client but build such cynicism into the relationship that losing the client will take place eventually.

In business, expectations are everything: exceeding them is the best way to win.

Remember you are negotiating for a long-term relationship
What is the best way to keep your eye on the prize (the long-term negotiation)? How about negotiating like the deal is already done and now you must deliver with a view to building a long-term relationship.

Several steps to follow:
•          Communicate openly and clearly, or head off misunderstandings before they can happen;
•          Build respect (an essential building block for the long term);
•          Practise reliability at all times to build trust (another essential building block for the long term);
•          Show your intention to enter into and maintain a long-term relationship.

Sebastian Fuschini is senior vice-president of franchising at Pizza Pizza Limited. He has more than 30 years of experience in the company’s franchising department.