Advertising funds for franchises – benefits and drawbacks

11 Jul 2007

Jack Burris

Jack Burris is president of Red Beard Marketing, a marketing, business development and brand consulting company based in Charlotte, NC. RBM is a full service firm, and we also happen to have a lot of experience in the franchise vertical and currently work with some of the best and brightest minds in the franchise community including Franconnect, Franchise Business Review, Franchise Payments Network and FranchiseWorks LLC, all small businesses designed to help franchisors, franchisees and interested investors through the franchise process. RBM is always results-oriented.

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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