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The franchise marketing fund is a pot that franchisees regularly contribute to. Franchisors can use it to fund marketing campaigns. Knowing how to manage a marketing fund effectively is essential to generating visibility for your network. This article will explain the franchise marketing fund and how franchisors should handle it in light of their legal obligations.
What is a Franchise Marketing Fund?
Franchisors can generate a franchise marketing fund by requiring franchisees to contribute a marketing fee. You should place the funds from the franchisees into a marketing fund, which you will use to advertise and promote your franchise network.
Good marketing often requires significant spending. A marketing budget allows you to develop your brand’s image and enhance your network’s presence. The better your marketing campaigns, the more brand awareness you can generate and the better your franchisee’s businesses will do. Strong campaigns will contribute to the success of your overall network.
Franchisee Marketing Fee
The franchise marketing fee is separate from the franchise fee and other royalty payments.
You might ask franchisees to pay a marketing fee at a flat rate, taking it regularly, perhaps weekly or monthly. Alternative methods include requiring franchisees to pay the marketing fee as a percentage of their total sales.
Within the franchise agreement, you will stipulate the amount franchisees will contribute, how they will provide this payment and the rest of the fee structure.
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Location of Marketing
Franchisors often use the marketing pot to finance national or network-wide advertising campaigns. The campaigns you will run will depend on the kind of advertising most appropriate for your franchise business. You can also request that franchisees set funds aside to pay for advertising in their local areas or territories.
Franchisee’s local campaigns can cater to the specific demographics in their areas and help familiarise local customer bases with their businesses. It is your responsibility as the franchisor to support franchisees. Therefore, you should offer franchisees assistance and expertise, helping them develop their local campaigns.
How to Manage the Marketing Fund
Franchisors may only use the marketing fund to promote the franchise business. They cannot utilise the funding for any other purpose. The franchise agreement will state that the franchisees are paying a marketing fee. This creates a legal obligation for franchisors to use the funds for marketing purposes only.
Every franchise business’s marketing budget will vary depending on the network size and the amount franchisors require from their franchisees. It can develop into a significant fund, especially in large networks.
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There is no requirement for franchisors to put the marketing fee into a separate bank account; however, it is a norm to do so. Keeping the marketing fund separate will make it much easier to comply with your obligations. Having a bank account, which you use exclusively for the marketing budget, ensures it is separate from other income and outgoings, making it much easier to handle.
Reporting on the Fund
Transparency with the marketing fund is a franchising best practice. It allows franchisors to build trust with their franchisees. As the franchisees pay the marketing fee for a specific purpose, they can ask you for details on how you spend it, or you might want to be proactive by providing them with a breakdown of spending and marketing campaigns. Keeping the funds separate will make it much easier to account for and report such spending.
If franchisees ask about how you have spent the marketing fund, they will likely also want to know about the success of your campaigns. Ensure that you can provide sufficient data about the success of your marketing.
You might arrange an annual report of the fund, including the auditor’s report, with this. Within the marketing report, you can demonstrate the following:
- details on income;
- the fund’s current balance; and
- a breakdown of annual marketing spending.
Key Takeaways
Within the franchise agreement, you will stipulate how much you require franchisees to contribute to the marketing fund. You should keep the franchisee’s marketing contributions separate from other royalty fees and income, making them easier to track and manage.
Other marketing fund best practices include:
- stipulating that franchisees must also put aside funds to organise local marketing campaigns;
- supporting franchisees with their local marketing efforts;
- providing franchisees with a detailed annual breakdown of marketing fund income and expenditure; and
- arranging for an independent auditor to review it.
If you need advice about your responsibilities as a franchisor and the franchise marketing fund, LegalVision’s experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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