A typical franchise advertising fee ranges from 1% to 4% of a franchisee’s total sales. However, some franchisors may request a fixed sum while others may charge a percentage. Franchise advertising fees can also be collected by a franchisor on a monthly or annual basis and they are generally held in a separate trust account.
A franchisor’s fee for advertising generally goes towards national and regional marketing and advertising campaigns to promote the overall franchise brand. However, in some cases, a franchisee may be required by the franchisor to handle and pay for their own local advertising and marketing efforts in order to draw more customers to their specific location.
Franchise marketing fees are typically held in a separate trust account that is managed and administered by an individual or a team of individuals working for the franchise brand. The franchise disclosure document must set out who manages the fees and how they will be allocated. In addition, the marketing and advertising fund is often audited and, depending on the terms and conditions of the franchise agreement, the franchisee must be able to understand the contents of the audit and financial statements in easily understandable language so that they are fully aware of how their contributions are being spent, on what, at what cost and with what overall outcomes.
Although both are typically charged as a percentage of total sales, there is a difference between a franchise advertising fee and franchise royalties. A franchise advertising fee’s purpose is specifically to advertise and market the brand on a national or regional level. This fee is kept in trust and spent in accordance with the agreement between the franchisor and the franchisees. Royalties, on the other hand, are fees that the franchisee pays to the franchisor – typically also a percentage of total sales (although it can be a fixed sum, too) – for the rights to use the brand, the franchisor’s intellectual property, operating systems and processes, etc.
Many if not most franchisors require their franchisees to contribute to a larger advertising “pool” of funds for national and regional advertising and marketing efforts. However, it is often the case that the franchisor will not cover local advertising costs, which a franchisee should be able to manage by themselves in order to draw in customers to their specific franchise location.
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