As you know, investing in a franchise comes with its fair share of fees. Based on the research you’ve conducted up to this point, you should understand the most common ones, including ongoing royalties and the initial franchise fee. But did you know that franchisors may also require franchisees to contribute to something called an advertising fund?
You should note that these fees are not considered income for the franchisor. In fact, they’re collected to help you market and advertise your franchise brand on a regional and national level. Here’s how it works:
Typically, the franchisor will collect advertising fees from all of their franchise partners. This money is then pooled together and used to invest in larger advertising projects on behalf of the entire brand, including radio, national newspaper advertisements, and TV commercials.
The additional money creates opportunity for extensive and large-scale marketing, hitting potential customers you would not have reached if you advertised independently. Don’t forget that you are still a business owner, which means you’ll need to invest your own money into more local marketing initiatives.
Not all franchisors implement an advertising fee. And those that do usually collect once a month, taking one to four percent of a franchisee’s gross sales. Unless you invest in an emerging franchise system, don’t expect your advertising costs to increase. As these emerging franchises grow, so does brand awareness, which means franchisors will most likely need additional money for marketing.
Here are some questions you can ask your franchisor about advertising fees:
- What advertising has been done in the past?
- What advertising and marketing initiatives are planned for the future?
- Is the advertising fund segregated from the franchisor’s regular accounts?
- Will the franchisor provide financial statements about the funds’ expenditures to the franchisees?
- Has an advisory council been established so franchisees can provide input on how these funds are allocated?
Advertising is expensive! So, what better way to get your brand name known on a national level than by teaming up with your fellow franchisees? The fees used in your franchise systems advertising fund will reinforce brand awareness, encourage customers to come to your franchise location, and ultimately, fuel your success!
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