Mandatory Marketing Programs Franchisors say you <I>have</I> to pay marketing fees. But where is your money going?

By Jeff Elgin

Opinions expressed by Entrepreneur contributors are their own.

Q: I'm looking into a number of franchise opportunities, and they all seem to have a mandatory marketing program that I would have to put money into. My problem is that it appears I will have little or no control over how the money is spent. Is this typical of franchising?

A: Mandatory marketing programs are probably one of the greatest strengths of franchising, but they can also be one of the biggest sources of conflict between franchisees and franchisors. These programs usually have a required contribution from the franchisee. This can be either a fixed amount or a percentage of the gross sales of the unit. In either case, the money is usually deposited into a fund that the franchisor has total control over in terms of deciding expenditures. The only caveat is typically that the money must be spent for "marketing" purposes, though this can sometimes be defined very broadly by a franchisor.

The reason this is such an advantage for franchises is that the strategy of pooling these funds from all the franchisees gives them much greater marketing power and clout in the marketplace to build the brand. This fund can do things, like run TV campaigns, that no single franchisee might ever be able to afford. The fund can also hire experts to produce advertising materials that are far better quality than what could be produced by an individual owner.

The conflict that can arise out of a program of this type always relates to franchisee feelings that the money is not being spent correctly. This can be a huge issue in any franchise system.

One common complaint focuses on the ratio of production costs to actual advertising costs in the fund. Any marketing effort needs quality materials to make a favorable impression on the consumer. On the other hand, if all the money is spent on producing great commercial materials, there isn't any money left to deliver these materials to the consumer. There obviously needs to be a reasonable balance between these two needs.

Another common complaint focuses on the amounts spent to promote "brand building" advertisements vs. the amount spent on "customer attraction" advertisements. Many franchise company corporate marketing department executives seem to favor the first approach, while most franchisees seem to favor the latter. This can lead to massive conflict if, again, there is not a reasonable balance between these two needs.

It is essential that you find out whether the marketing program is a benefit or a source of conflict in any company you are considering. You can determine this by asking the existing franchisees and looking for a preponderance of opinion.

If you find a franchise system where the majority of the existing franchisees are unhappy about the way their marketing dollars are being managed, you can safely assume that you will end up unhappy as well. On the other hand, if most of the franchisees appear to be very pleased with the way this fund is being handled by the franchisor, it is probably a company where they are happy about most other factors as well.

There is a real benefit to most franchisees to have professionals handle the marketing needs of their business. This can be a strong benefit of any franchise system, but make sure that it is working like it should by thoroughly researching the company prior to making a commitment to the franchise.

Wavy Line

Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.

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