One optional, ongoing way of marketing in a franchise network is by having franchisees contribute to a marketing fund. This fund pays for any advertising and marketing required to promote the franchise network. This article will explore best practices to manage a marketing fund for your franchise.
Marketing Funds
Many franchises require their franchisees to contribute to a marketing fund. This fund pays for necessary advertising and marketing to promote the franchise network.
As a franchisor, you can raise funds in several ways, such as through a:
- flat weekly or monthly fee;
- percentage of turnover (as part of the royalty fee);
- percentage of turnover collected (separately from the royalty fee);
- mark-ups on products or services supplied; or
- rebate from suppliers.
National vs Local Marketing Funds
Although most marketing funds are used for national advertising campaigns, some franchises require franchisees to also put aside funds for local promotion. Alternatively, franchisors may rebate expenditure on local marketing from the national fund to encourage smaller campaigns.
Emphasis on local marketing campaigns is particularly important because the franchise’s offerings differ at each location. As a franchisor, you may elect to provide expert assistance to help franchisees develop and execute marketing plans locally.
Continue reading this article below the formManaging Marketing Funds
It is important to consider that New Zealand has no franchise-specific legislation. Although the Franchise Association of New Zealand (FANZ) has both a Code of Practice and a Code of Ethics that its members must abide by, neither document mentions obligations concerning operating a marketing fund.
This means franchisors are not required to keep a marketing fund in a separate bank account, as is required in many other countries (such as Australia). However, the FANZ has acknowledged this as an important topic. Any future revision of the FANZ’s Code of Practice is expected to be amended to ensure some rules and regulations around marketing fund management are put in place.
Marketing Reports
Although there is no legal requirement for marketing disclosure, some franchisors provide franchisees with an annual marketing report. This report would cover:
- income and expenditure details;
- balance of the group marketing fund (both opening and closing); and
- details of any administration or other category expenses compared to marketing and advertising expenses.
It is also worth considering that some franchising companies have their marketing fund’s financial statements audited annually. Not only will it show where funds are being allocated, but it will also provide franchisees with information about the success of fund allocation. This promotes transparency within the franchise network and a good relationship between the franchisor and franchisees.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
Key Takeaways
Many franchises require their franchisees to contribute to a marketing fund. This fund pays for necessary advertising and marketing to promote the franchise network. Some key things to know about managing a marketing fund include that:
- there are no regulations for marketing funds;
- the FANZ does not refer to marketing funds; and
- it is best practice to provide franchisees an annual marketing report.
If you need assistance to manage your franchising marketing fund, our 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 0800 005 570 or visit our membership page.
Frequently Asked Questions
Many franchises require their franchisees to contribute to a marketing fund. This fund pays for advertising and marketing required to promote the franchise network. The franchising agreement will outline the franchisee’s involvement in the marketing fund, including any ability to contribute to the decision-making processes and how much they must contribute.
A group marketing report will provide a useful and insightful breakdown of actual marketing expenditure and, ideally, measures of associated effectiveness. This includes information on income and expenditure details and the opening and closing balance of the fund.
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