A franchise consultant once asked, if you have one company owned location and you sell your first franchise, how much did you grow your company by? The answer is 100%. You opened an entirely new location with new customers, new exposure and truly doubled the exposure your brand has in the marketplace.
Franchise Systems generally will collect several tiers of advertising dollars in order to support the development of the brand not only in each local market, but also regionally or nationally.
The local advertising requirement is focused on pushing franchisees to do the right thing and advertise their business in their own market. It seems like common sense, but an FDD should have minimum local advertising spends required of franchisees. Generally these can be 1-5% of gross revenues and they are audited by the Franchisor periodically to confirm that the advertising is happening. The money would go into the specific market the franchisee is located in and although the franchisee has discretion how these local advertising dollars are spent, they must be done so using the franchisor's prescribed plan.
Cooperative Franchise advertising dollars are those that are instituted by a committee or the Franchisor based on a market's common ability to support exposure across multiple units. For example all of the Southern California franchisees might band together and advertise their franchise as a unit, spending money on TV ads, radio or other large scale advertising that would not make sense as a single unit. This regional cooperative advertising within a franchise can many times be the most effective medium and delivers powerful unit level economics if managed correctly.
National Marketing Funds are the ones we all hear about all the time in franchising. The Franchisor collects the money each month or week concurrently with royalty payments and then puts that capital towards advertising the brand and benefiting everyone in the system. This sounds great, but in practice, it can be a difficult task to deliver equally to all franchisees who are paying for the National Marketing Fund. Good franchisors typically do have a Marketing Fund in place, they just treat it like a sacred cow and are very careful as to where the money is spent. The Marketing Fund should be audited each year and presented back to the franchisees as to where the money went and what benefit it had for their businesses.
Whichever medium or category of franchise advertising, the key is to leverage the network and benefit from having franchise owners driving the same brand that you are every day. Together, you will be able to build a brand with more power, equity and value.
For more information on how to manage your franchise marketing systems, contact Christopher Conner: Chris.Conner@FMSFranchise.com