The Franchise Manual Podcast – Episode #22 – Franchise Marketing Fund
Drue Townsend shares A LOT of what she has learned from managing the MARKETING FUND at FASTSIGNS International. The words “Marketing Fund” can create anxiety in many people and Ms. Drue will demystify the concept and teach you exactly what you need to know to make the most of your company’s marketing fund. Rob Vinson from Vinson Franchise Law joins the conversation to help us with some of the legal issues that are related to the Franchise Marketing Fund.
|Drue Townsend Intro||00:00:40|
|Get to know Drue Townsend|
|Topic Segment – Franchise Marketing Fund|
TOPICS DISCUSSED IN THIS EPISODE:
What Is A Marketing Ad Fund?
- It is a collection of money paid by franchisees and managed by the franchisor, to enact defined marketing and advertising initiatives and bring value to the brand and franchisees.
- It is in addition to any Royalties paid by the franchisee to the franchisor.
- It is usually a percentage of gross sales (but could be a flat fee)
Marketing Fund By Laws:
There should be written By-Laws that outline how the fund can be used (what types of initiatives; pro-rata vs. major markets vs. national only), who makes decisions about it (as an example, highest ranking Marketing Person and CEO with Franchisee Ad Council input), who can sign contracts (often just the CEO and Marketing Person), where the money is kept (recommendation is that it is held in a different financial account with its own Profit and Loss Statement and Balance Sheet), who is providing the fiscal oversight and ensuring proper collection and use of the fund.
Sample Acceptable Uses of the fund
- Build and maintain the brand and location’s central website
- Create television ads
- Run paid social media ads
- Join a vertical industry association and exhibit at their trade show
- Agency fees or marketing team member salaries/benefits
- Marketing research projects
- Franchise Development advertising
- Legal fees for the new corporate office lease negotiation
- Create training and operations manuals about safety
- Pay for a convention cocktail party
- Collect just to rebate back to franchisees who do X and Y
How to Justify an Ad Fund to a Franchisee
- Use the dollars to protect and promotes the brand, which protects your investment today and should add value to your asset when you go to sell one day
- It builds brand awareness and brand consistency when marketing and advertising has the same messaging strategy and look/feel; easier to control and do when centralized
- Doing things “on your behalf”; things that you – or other franchisees – can’t, won’t or shouldn’t do on your own.
- Looking for economies of scale (having a customer satisfaction survey platform that all franchisees can be part of through the Ad Fund vs. having each one find their own; having one website managed and hosted by corporate; buying national cable television vs. having 30 franchisees by spot cable), things that require compliance (email marketing platform); , would reach beyond one’s area and impact other franchisees positively or negatively (joining a national association and advertising on their homepage), etc.
The Importance of Franchisee Involvement in the Marketing Fund
- Create a Marketing Ad Council (ours is called the National Advertising Council) and it has 6 elected Board Members representing the 650 locations in the US and Canada. Scale the number with growth; we started out with 3 and don’t have plans to increase beyond 6 anytime soon. Too many prohibits decision making.
- The National Advertising Council ? or whoever works with the corporate team on Ad Fund projects ? can be different than the Franchise Advisory Council, or one group of franchisees can provide guidance to the corporate team on both types of topics.
- You can have officers for the Ad Council, but because franchisees have their own businesses to run, we don’t have franchisees fill these roles and therefore then have to do the meeting minutes, organize administrative board events, etc.
What Should You Start Spending Money on Today From an Ad Fund
- Digital marketing
- A corporately managed website with micro-sites/location pages on it
- Google My Business page management
- Directory Listings management (so all information about a location gets propagated accurately and updated across the web)
- Brand social media sites (and organic content/ads on them)
- Creation of some brand materials (depending on your product/industry and how you go to market; could be an automated platform or just have the assets/materials available
- Point of Purchase materials
- Print materials (brochures)
- Digital Asset Management software
Common Pitfalls with a Marketing Funds
- Don’t cap your Ad Fund fees; it will make future high-volume franchisees happy but it will keep your Ad Fund from growing (and you will have more locations to help)
- Try not to require yourself to spend pro-rata. It is very hard to do well and sometimes money needs to be spent in an area of the country or on something that doesn’t benefit all equally. Ex: a sponsorship that covers only 15 cities, but has regional television and a big online effort; a state listing on a website where 50% of your locations do business.
- Don’t collect money only to give it back through subsidies or rebates or matching. A lot of admin work, disagreements about what does and doesn’t qualify, etc.
Franchise Marketing Fund Tips
- Start an Ad Fund from the beginning (as you establish your brand/franchise). If you don’t have one, start one now with future agreements. Consult with your accountant and attorney to determine if it should be set up as a separate entity (and what kind), what the tax implications will be, if it is subject to any accounting regulations (ASC 606 deals with revenue recognition).
- If corporate can match any funds, it is a great way to soften the process of starting an Ad Fund
- Collect Ad Fund fees the same way that you collect Royalties (ex: EFT on the 5th of the month). If you don’t pay your Ad Fund fees, you are subject to the same compliance issues and penalties as you have if you don’t your Royalties on time/ever
- Encourage franchisees to spend money locally on things that make sense in their market ? local pay-per-click, display ads on local websites, radio, joining associations, sponsoring events, etc. Don’t fund discounts in national promotions either (ex: $1 off sandwich promotion should be absorbed by the franchisee; not paid by the Ad Fund).
- Determine if king kong seo, freelance help or an in-house marketing team is best for your business. There are pros and cons for each, and in the long term, the best result is probably a mix of all three, but emerging businesses with small or no Ad Funds have to really stretch dollars.
- Have governance and be transparent with your franchisees. Review financials each month and have annual statements audited. Share categories of spending at big meetings. Have a franchisee-elected Board of Directors that works with the corporate team to be a sounding board, communicator, tester, etc.
- Have protections. Require a small percentage of the funds to not be budgeted ? to be held out of the budgeting process ? in case sales decline or the Ad Fund is owed money by the franchisees. It’s easier not to budget for something than to have to cancel programs later. As your system grows and your Ad Fund grows, have provisions in your guidance documents that allow you to reduce that percentage. (We don’t, and our By Laws require a 5% hold back or carryover, which is now hundreds of thousands of dollars a year).
- Make your agreements broadly specific. Sounds like an oxymoron but give the brand room to expand what the Ad Fund can cover, but don’t make it too open-ended.
How to Set Up a Franchise Marketing Fund
- Contact a franchise attorney and ask them for best practices in your industry, business and the way you market. See if they have sample drafts or if they can help you create an Ad Fund plan, By-Laws, content to include in your Franchise Disclosure Document and content to include in your Franchise Agreement.
- Determine and set up your collection amount, audit and governance processes, etc.
- Create a long range marketing plan – 3 to 5 years – based on estimated collected funds, and what those funds could buy. Prioritize the spending and share the big picture plan with franchisees and future franchise candidates so they know there is a plan, but clarify that this is based on assumed growth and that the plan is not contractually guaranteed.
Vinson Franchise Law