Advertising funds for franchises – benefits and drawbacks

As part of many franchise agreements, franchisors require franchisees to contribute to an advertising fund. Sometimes these funds are national (i.e. McDonald's) and others are regional … the deciding factor 99% of the time is the number of units a franchise has and if it makes sense for a national reach vs. a more targeted local marketing campaign.

The advertising fund is usually the most controversial parts of a franchise agreement, too. An example of the arguement:

Franchisee: Why should I, the franchisee, pay my money to the franchisor to manage the advertising? It's my money and I should be able to dictate how much I spend and how that money is allocated.

Franchisor: We require a franchisee to contribute to an advertising fund for several reasons:

1) Brand consistency

2) Collective buying power

3) A bigger voice

Who's right? What system works best. I for one am a big believer in brand consistency and know that if a single entity is ultimately managing the advertising fund, the work should be better … and more effective. But I also believe that the group managing the fund should have at least a 75% representation of franchisees. It is, after all, their gross revenue that is funding the account.

Jack Burris is Vice President and Partner with Franchise Business Review and is also a regular contributor for Startup Nation's Franchise Business Coaching Blog. You can contact him directly at thefranchiseguy.

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