đź•’Estimated Reading Time: ~3 minutes
Advertising Fees for PostNet (from 2019 FDD)
| National Advertising Fund Contribution | 2% of gross sales. |
| Individual Advertising Expense | Greater of 2% of gross sales for previous 12 months or $6,000 per year. Instead of the annual requirement, the franchisor may require the greater of 2% of Gross Sales for the previous calendar year quarter or $1,500 per quarter. |
Advertising Fees for Long John Silver's (from 2019 FDD)
| Advertising | 5% of gross receipts for Traditional Restaurants and Co-Brand Restaurants; 1% of gross receipts for Express Restaurants. |
When it comes to ongoing fees franchisees pay to franchisors, only the royalty is more common than advertising fees. Typically there are two divisions of franchise advertising fees as illustrated above: the national (or general) ad fund and the local (or sometimes termed a cooperative) contribution. In some cases, these two are combined into one contribution amount as in the second example.
The national ad fund is a certain amount of money, commonly a percentage of sales or revenue, franchisees of a system pay to the franchisor for items related to advertising and promotion of a brand such as: TV commercials, brochures, billboards, print ads, public relations, website development, etc. The items generated from the national fund are for the franchise system as a whole and all of the system’s franchisees benefit from these macro level efforts.
However, while national level advertising is good, marketing efforts often make more impact when focused on a local, or micro, level. The local ad contribution for franchisees is “the same money that every successful business owner should be spending to promote their business,” according to franchise consultant Rick Bisio, whose book, The Educated Franchisee, is highly regarded in the industry. “The only difference is, in a franchise system, the amount is quantified and agreed upon ahead of time.”
However, simply because franchisees are allowed to run local ads doesn’t mean they can run any kind of ad they want. The main reason behind this is trademark protection.
How Trademark Protection Restricts Franchisee Ad Development
One of the main reasons wannabe business owners choose franchises is an already established brand. To solidify that brand and reap the financial benefits that come with equity gained over the years, franchises file legal paperwork trademarking the images, sayings and other intellectual property that allow them to stand out in the marketplace. In order to protect this intellectual property, franchises have specific and well-enforced rules about the usage of their respective trademarks.
“The franchisor has worked hard to perfect a system that can be replicated by others, so what the franchisee is buying is a license to use the system, not the system itself… The system may include the right to use trademarks and logos, but you’re not buying them.” ~ Rick Bisio
Item 13 of a franchise’s Franchise Disclosure Document (FDD) details the franchise’s trademarks, government filings involving those trademarks, and proper usage. Franchisees are typically forbidden from using any trademark, or anything that could be confused for the franchisor’s trademarks, in their individual corporate or legal business name, domain name, homepage, electronic address, or even hashtags.
In order to monitor trademark usage by franchisees in advertising many franchisors utilize “Ad Builder” systems. Ad Builder programs allow for franchise owners to customize advertising and other marketing materials by using a template and entering their custom data into different fields that the franchisor can control. It also aids in keeping franchisee-generated ads legally compliant.
In order to capitalize on the knowledge and established business systems of franchisors, franchisees have to make some concessions. One of those places is advertising creativity. But fortunately for franchisees, many franchisors welcome input on how they feel ads could be their most impactful via franchisee councils. Working together ensures the franchisor and its franchisees can reach and attract the greatest number of customers possible for the brand.