10 things to know about franchise marketing funds

Post by: Alex Deakin in Franchise Marketing Funds

Are you wrestling over costs or just wondering how a Franchise marketing fund should work?

Whether you are a Franchisor, Operator or Franchisee everyone should be in agreement over the Marketing Fund. Good marketing increases the value of the brand reputation, this is what customers are prepared to pay for the product or company over and above its basic cost. The marketing fund fund should cover the costs related to doing that and so benefit Franchisee & Franchisor.

1. What is a Franchise Marketing Fund?

The Franchise Marketing Fund is made up of contributions, of an agreed percentage of gross sales revenue, taken from every trading store, whether it is a Franchised store or a “corporate” store run by the Franchisor (or Master Franchisor (MF) or Sub Franchisor (SF)). The percentage taken is specified in the Franchise Disclosure Document.

2. How are Franchise Marketing Funds collected?

The Franchisee’s contribution is paid monthly, in arrears against an invoice raised by the Franchisor Support Office. It is based upon reported monthly sales of the store.

3. How are Franchise Marketing Funds administered & reported?

The contributions are collected & held in a separate bank account, outside of the Franchisor corporate accounts structure.

The Franchise Marketing Fund is audited, separate to any company accounts, every year within 4 months of the end of the financial year (3 months for oil companies).

In line with the franchising code of conduct, a report containing sufficient information to understand the sources of funds & the expenditure is circulated to the Franchisees within 30 days of this deadline.

NOTE: Following the recommendations 6.9 & 6.11 of the reports on “Fairness in Franchising, this is likely to change requiring:

Quarterly Reporting, in detail prescribed by the Australian Accounting Standards Board

Auditing to a chart of accounts & guidelines supplied by the Auditing & Assurance Standards Board

4. How are Franchise Marketing Funds spent?

The franchise marketing fund spend is allocated & managed by a senior Marketing Officer of the Franchisor & where reasonable, in conjunction with a Marketing Committee to ensure that input from the Franchisees is taken into consideration & sufficient detail of any potential impact to their business is properly communicated.

The Franchise Marketing Fund can only be spent on cost areas outlined in the Franchise Disclosure document. These must be legitimate marketing or advertising expenses, or be reasonable costs of administering & auditing the fund. Any other costs must be agreed to by a majority of Franchisees.

5. What is a Franchise Marketing Committee?

The Franchise Marketing Committee is made up of an agreed number of representatives from the Franchisor e.g. the Marketing Manager, a Finance Representative, CEO as well as Franchisee representatives from each main region or media area.

The committee should operate under a Franchise Marketing Committee Charter or set of guidelines, including a confidentiality agreement, with a mandate to maximize the benefit obtained from the marketing funds, to grow the brand stature & the business.

6. What does a Franchise Marketing Committee do?

The Marketing Committee reviews the results of, expenditure & plans for marketing initiatives.

The Franchisee representatives on the Marketing Committee obtain input from all the Franchisees, give insight into their issues & conversely gain their alignment around Marketing Fund expenditure & activities.

NOTE: If the Franchisor is a public company, the Marketing Fund may need to be set up as a separate company, with a board of directors, representing Franchisor and Franchisees. Special auditing is required to ensure compliance with local fiscal laws e.g. certification of “on-going viability” at end of financial year, when expenditure is ahead of collections, for example due to seasonality.

7. Which costs does a Franchise Marketing Fund cover?

The Franchise Marketing Fund can only be spent on areas as costs outlined in the Franchise Disclosure Document. These must be legitimate marketing or advertising expenses, or be reasonable costs of administering & auditing the fund. Any other costs must be agreed to by a majority of Franchisees.

Costs often seen include but are not limited to:

COST AREAS	EXAMPLES OF COSTS
SALARIES	Headcount directly relating to the marketing team. Note: this may only be a shared cost since the Franchisor would normally have a marketing function.
ADMINISTRATION	Bank charges, contribution to salary overhead of a finance administrator to handle the book-keeping, travel costs for fund meeting attendance by Franchisees
RESEARCH & INSIGHTS	Brand Tracking, industry data, Customer Journey Insights, Customer Experience Tracking e.g. Net Promoter Score (NPS)
CONTENT	Design, copy writing, storyboards, artwork, illustration, photography, video, mock-ups; proofs, photo/video royalties & licenses, copyright, talent fees for content or influencers, point of sale, advertising, web, packaging etc.
MEDIA	TV, Radio, Press, Digital, Ad-word Campaigns, Social (Boosting & Advertising), native advertising, email & S.M.S charges
POINT OF SALE	In-store & promotional e.g. Menu boards (excl. hardware), stanchions, flags, decals, counter cards, leaflets, price-lists, brochures & delivery to store, in support of brand or marketing initiatives.
MARKETING COLLATERAL & STOCK	Used to purchase: Vouchers, Coupons, Frequent User Cards, Promotion Kits. Note in larger systems these are pay as you use and could potentially include Paper/Packaging costs due to high volume required/transaction.
PREMIUMS STOCK	Giveaways e.g. Balloons, pens etc. Often an up front purchase to get volume but pay as you use.
LOCAL STORE MARKETING	Production of artwork, templates, leaflets for overprint, scripts to tailor for stores or regions. Provision of on-line system for tailoring & printing or small monthly admin fee of a local agency.
COMPETITIONS	Licenses, legal fees for Terms & Conditions, prizes & donations
AGENCY FEES	Monthly retainer fees for Advertising, Media or Promotions agency which cannot be attributed against specific projects or promotions.
PUBLIC RELATIONS	Agency retainer fees & costs, “cuttings service”, reputation management, events, exhibitions, display materials.
DIGITAL INFRASTRUCTURE	Web updates, plug-ins & SaaS platforms specifically relating to marketing.
CONTINGENCY	Good practice to keep back ~5% to be reduced as the year goes on to allow for reduced income vs. budget due to sales below forecast or fewer store openings.

8. How are Franchise Marketing Funds allocated across stores?

A Marketing fund should benefit all stores and franchisees by contributing to growth of the business & the brand stature. Any strategic decisions that go against this need to be clearly stated & accepted by Franchisees For example; “We will over-invest $X to grow the brand in the Northern Territory, so that we have national brand coverage, with benefits to the business of…”
The challenge:
Where possible, an equal amount of media exposure & support should be given to each store & each media region.
AND
Where possible, media support should be proportional to the contribution of the stores, in each media region vs. the other regions
The challenge is due to difference in media cost between regions; e.g. TV in Sydney vs. Adelaide. or the different size & reaction of digital media audiences by regions, or the number of stores & therefore the amount of contribution from each region. This can be overcome by clear communication & alignment around overall business goals.

TIP: Create Flexibility by allowing all the stores in one media region to increase their contribution over & above the standard level, in order to increase media weight in that region, as long as they have met all other obligations in spend & compliance.

9. What happens at Franchise Marketing Fund Committee meetings?

Strategy & budgets should be established before the end of the previous year, by the Marketing Team, based on forecasted sales & communicated to Marketing fund committee members.
Marketing Fund Committee Meetings are usually held each quarter:

10. How good is my brand at running our Franchise Marketing Fund?

Take the marketing Fund Fitness test, answer 10 simple questions to see how your system stacks up:

BrandCents Consultancy is an independent Marketing Consultant specialising in Brand & Customer Experience with over 20 years experience working with Global, US, UK & Australian Franchise Companies. CALL US for help on creating best practice Marketing Fund cooperation & improving Marketing Department satisfaction scores in your franchise community.