Contract Design and Range of Services in Franchising: An Empirical Contribution to the Effect of Incentives and Reputation

  • Thomas Ehrmann
Conference paper
Part of the Contributions to Management Science book series (MANAGEMENT SC.)


A major problem in franchise systems is the effect of contract design and range of services on success. This study interprets the consequences of contract design in franchise chains in terms of sales. Therefore, the royalty rate dependent on sales and the initial lump sum fee will be investigated. Furthermore, the impact of the franchisor’s activities and policies on the sales volume of the franchisee will be studied. The following hypotheses reflect the impact of incentives and reputation on success:
  • the higher the fixed fee the higher the revenue of a franchisee

  • the lower the royalty rate, the higher the revenue of a franchisee, the higher the degree of freedom for individual franchisees, the higher the revenue of a franchisee

  • the higher the initial investment, the higher the revenue of a franchisee

These hypotheses were tested using a questionnaire sent to a representative sample of franchise systems operating in Germany. The OLS-regression results offer strong support to the tested hypotheses. The results show that high fixed fees combined with low variable fees and a certain degree of freedom for franchisees are positive indicators for a high individual revenue for a franchisee.


Business Planning Sales Volume Enterprise Resource Planning System Contract Design Empirical Implication 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2004

Authors and Affiliations

  • Thomas Ehrmann
    • 1
  1. 1.Center for EntrepreneurshipUniversity of MuensterMuensterGermany

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