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Being a franchisee means paying various fees, and knowing what you owe and when it is due is vital. Commonly, one of the fees franchisors charge is a marketing fee. Most franchisors use the funds from the marketing fee to advertise the wider franchise business. It is an additional payment that franchisors usually take separately from the royalty fees. This article will explain what a franchise marketing fee is and why your franchise business must pay it.
What Are Marketing Fees?
Franchisors tend to charge their franchisees a marketing fee, the amount of which varies depending on the franchise. This is usually a regular payment, like the ongoing franchise fee. All marketing fees are pooled into one large pot of funds, which are directed to marketing the franchise brand and strengthening its presence.
A franchisor’s marketing goals can vary depending on factors such as:
- industry;
- network size; and
- age of the business.
As a franchisee, your fees can vary depending on how your franchisor calculates them. For example, they may charge the marketing fee monthly at a flat rate or fixed percentage, such as 2 or 4% of your gross monthly profit. Check your franchise agreement if you need to clarify how much you owe or when you owe it.
What Do Marketing Fees Contribute Towards?
The franchisor builds a marketing fund by collecting small amounts from each franchisee. If the franchise network is extensive, this pot can develop into a considerable fund. The franchisor can spend this on more extensive advertising.
Suppose you want more information about how the franchisor spends this money. In that case, you might ask your franchisor for more details on:
- the brand’s marketing strategies;
- current advertising projects; and
- the success of previous campaigns.
Some franchisors ask their franchisees to guide how they should spend the money.
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Why Pay Marketing Fees?
Paying marketing fees is likely a contractual obligation for franchisees set in the franchise agreement. You should pay it regularly and on time; otherwise, you may be in breach of contract. Your business can benefit from the franchisor’s marketing spending.
You will be contributing to a network-wide pot for marketing projects that can be regional, national, and sometimes international in scope. You may not see quick or direct value from your payments. But, the marketing fee can positively affect your franchise unit. Your business can benefit if the franchisor successfully markets the overarching brand. A successful campaign can:
- enhance the brand’s market position;
- increase brand awareness; and
- bring new customers to your unit.
Some franchisors will not charge a marketing fee. If they do, the marketing fund does not form part of the franchisor’s income. Instead, they should spend it on advertising the wider franchise business. Prospective franchisees who want to avoid paying a marketing fee may negotiate this with their franchisor, but they may still require that you pay it.
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Local Spending
In addition to contributing to the network-wide marketing budget, the franchise may require you to spend on local advertising and marketing your own unit. Local marketing is another cost of franchise ownership. This is a cost you should factor into your budget. Your franchisor may be able to help you generate fresh campaign ideas.
Key Takeaways
Most franchisors charge a marketing fee and pool the funds from all their franchisees into one pot. They use this fund to promote the brand and conduct more extensive advertising. Franchisors usually expect their franchisees to pay this fee monthly. They typically calculate the amount you owe in one of two ways:
- as a fixed rate; or
- a small percentage of your gross profit.
Some franchisors ask for their franchisees’ input on how to spend the money. You might ask your franchisor for details if you want further information on how your franchisor uses the marketing fund.
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