What Is The Marketing Fee And Why Should I Pay It?

28/02/2018 08:00 | Start a business

What is the franchise marketing fee?

Itís common for franchisors to charge their franchisees a marketing or advertising fee; but what is this and why do you need to pay it? The marketing fee is separate from the franchise fee as it is a regular payment, usually collected on a monthly basis. Your money is pooled together with that of the other franchises within the network to allow more effective and impactful promotion of the brand. This is how to make a franchise more recognisable which ultimately benefits all franchisees.

How does it work?

The marketing fee is generally calculated as a percentage of your gross sales on a monthly basis. The cost of a franchise marketing fee differs from one brand to another but tends to range from 1% to 4%. Some franchisors don't charge any marketing fee at all.

Understanding the franchise fee structure 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. Whereas royalties are paid to the franchisor to cover their ongoing support and enable them to earn an income, the marketing fee has a very specific purpose.

The collective marketing fund can be quite substantial, particularly in bigger franchises. For this reason, some franchisors establish a marketing committee to give franchisees a chance to input into how the money is spent. The cost of a franchise advertising campaign to raise brand awareness can be expensive, so involving franchisees can result in improved ideas and decisions being made.

Local marketing requirements

As well as the brand level advertising that is funded by the collective marketing fund; as a franchisee, youíll also be expected to pay for local promotional activity. Your franchisor will have the expertise and experience to know how to make a franchise brand recognisable on a national level, but you will have the local knowledge to drive customers to your franchise through marketing within your area.

Make sure that you check your franchise agreement to understand your obligations on this front fully. It's likely that you'll be financially accountable for performing local market advertising each month. You may also be required to join up with other franchisees within a specific area to promote your businesses together.

Understanding what youíre getting for your money

You shouldn't assume that your franchisor knows how to make a franchise stand out from the competition with quality marketing activity. 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. Here are some questions you may want to ask your franchisor:

  • 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 how the money is used.

The benefits of paying a marketing fee

The cost of a franchise can appear overwhelming at times. Along with 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 support and training on offer. These are elements of your franchise business that an independent business owner would appreciate when they find it tough going alone.

There are definitely advantages for a franchisee contributing to a centralised marketing fund:

  • Advertising is expensive. The marketing fund enables the brand to perform marketing activity that just 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.
  • There are many different forms of advertising. There are the traditional newspaper ads, TV and radio campaigns, and billboard posters, as well as digital advertising via Pay Per Click, display 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 brandís customer base.
  • A combination of national advertising along with local marketing initiatives can strengthen brand awareness to your customer base and persuade them to visit your franchise. Itís unlikely that your marketing efforts alone would enable you to reach the number of potential customers that a joint marketing plan can.

What if I donít think the marketing justifies the fee?

It's essential 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 work together to overcome the problems that the current marketing activity is experiencing.

Whatever happens, donít be tempted to withhold paying your fees. This is not the right way to deal with the situation. Not only will this result in loss of trust between you and the franchisor but will put you in breach of your franchise agreement. If this is the case, then the franchisor is entitled to terminate the deal, leaving you with very little.

Instead, be open and honest with the franchisor about your expectations versus reality. Itís 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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