It’s standard practice for franchisors to charge their franchisees a marketing or advertising fee – but what is this and why do you need to pay it? Today we unpick the ins and outs of marketing fees to keep things simple.
Buying a franchise is a big commitment and involves a number of different types of costs. If you’re considering taking the leap and becoming a franchise owner, you need to have a complete understanding of the marketing fee and why it’s necessary.
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What is it?
Your money is pooled together with that of the other franchises within the network to allow more effective and impactful promotion of the brand.
The marketing fee is normally calculated as a percentage of your gross sales on a monthly basis. The value of a marketing fee varies from one brand to another but tends to range from one to four percent. However, some franchisors don't charge any marketing fee at all.
What does it go towards?
- Franchise fees can be confusing at times, but for reasons of transparency, the franchisor should ensure that the marketing fee is kept separate to other royalty payments. Royalties are paid to the franchisor to cover their ongoing support and enable them to earn an income. On the other hand, the marketing fee has a very specific purpose.
- The collective marketing fund can be quite substantial, particularly in large franchises. For this reason, some franchisors establish a marketing committee to allow franchisees to have a say on how the money is spent. Raising brand awareness through a franchise advertising campaign can be expensive, so encouraging franchisees to have an input can result in better ideas that encompass all franchisees’ opinions.
You shouldn't always assume that your franchisor has all the relevant expertise to make a franchise outshine its competitors. As you're contributing to the money spent on advertising, you're well within your rights to get a better understanding of how effective the marketing strategy is. Consider the following questions you could ask your franchisor to ensure you’re getting the most out of your money:
- What type of marketing has been carried out in the past?
- How successful was this marketing?
- What marketing activity is planned for the near future?
- How is the marketing fund kept separate from royalty fees?
- Can you share accounts showing how the marketing fund has been spent?
- Is there a marketing committee in place and how many franchisees are involved in the decision-making process?
Your franchisor should have no issues with answering these questions and may invite you to be part of the marketing committee so that you can become more involved in deciding how the money is used.
Why is it necessary?
The marketing fee helps make a brand more recognisable by giving it a stronger presence in the local, national or global community, which ultimately benefits all franchisees.
When do you pay it?
The marketing fee is separate from the franchise fee, as it is a regular payment, usually collected on a monthly basis.
How does it make a difference?
- Advertising is expensive. The marketing fund enables the brand to perform marketing activities that simply wouldn't be possible without the contribution of its franchisees. If you didn't pay into such a fund, it would be almost impossible for you to gain brand awareness on a national level. As with most things, you get out what you put in.
- There are numerous different forms of advertising – traditional newspaper ads, TV and radio campaigns and billboard posters, as well as digital advertising via Pay Per Click and social media marketing. What works for one franchise may not work for another. The beauty of a combined marketing fund is that testing can be performed to identify the best format to appeal to the brand’s existing – and hopefully growing – customer base.
- A combination of national advertising along with local marketing initiatives can strengthen brand awareness to your customer base and entice them to seek services from your franchise. It’s unlikely that your marketing efforts alone would enable you to reach the number of potential customers that a joint marketing plan can.
What if you don’t want to pay the marketing fee?
As we’ve established, marketing fees can make a real difference to the success of a franchise brand, so they don’t tend to be optional.
But if you don’t think that it’s justified, it's paramount that you raise any issues regarding the quality and quantity of the national marketing initiatives with your franchisor as soon as possible. They may also have similar concerns, and you can join forces to overcome the problems that the current marketing strategy is experiencing.
Whatever happens, don’t be tempted to withhold paying your fees. This is not the right way to deal with the situation. Not only will this result in a loss of trust between you and the franchisor, but it will put you in breach of your franchise agreement. If this is the case, the franchisor is entitled to terminate the deal, leaving you with very little.
Instead, be open and honest with the franchisor about your expectations. It’s in both of your interests for the marketing fee to be spent on the most effective advertising, so cooperate to develop the most successful marketing plan that you can.
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Franchise marketing fees – the summary
The costs involved in starting a franchise can seem overwhelming at times. On top of the franchise fee, there are the ongoing royalty and marketing fees to pay. It's important to remember what you get in return for these fees – benefiting from a tried and tested business model with a recognisable brand name, along with the comprehensive training and support on offer.
It's a good idea to speak to existing franchisees and ask them if they think the marketing fee is money well spent. Make sure to listen to both sides because there’s a large chance not everyone will have the same view. Then, you’re perfectly within your right to discuss this with the franchise representative to see what they have to say. If the majority of franchisees that you speak to are happy and making money, this is, of course, a good sign.
If you want to read more of our articles dedicated to marketing, check out one from below:
- Franchising 101: 6 Tips for Building Customer Loyalty Through Marketing
- Our Top 5 Tips for Marketing Your Franchise
- Developing an Effective Franchise Marketing Plan
Becky Martin, Point Franchise ©