In this episode we cover the national advertising fund from the franchisor’s perspective. We delve into some key aspects of setting up the fund, what fees are applicable to run through the fund, and some common mistakes.
Hi and welcome to another episode of All About Franchising. In today’s episode, we’re going to cover the Ad Fund from the franchisor perspective. We’ll cover how to set one up and some other considerations, including what to do locally, and what to manage centrally from the corporate office. Ideally, we recommend managing as much as possible centrally.
So, what should a franchisee spend every month in order to be successful in their franchise? Without getting into a lot of difficult math right now, let’s just use $5,000 as a standard amount to be spent for the first year to get the business off the ground. So, you want to look at that $5,000 and determine what can we do from a national perspective better than can be done, even if done perfectly by the franchisee locally.
A lot of marketing items are probably going to be done better centrally rather than locally. And the reason we say that is because, even if you give a perfect plan to the franchisee, and you provide them the materials to do the job, and you explain how to do it- you still have hundreds of franchisees out there. They’re all going to perform the tasks slightly differently, which means you’re going to garner different results.
And what you really want in a franchise system is consistency. So, if possible, if it can be done very effectively from a national level, then it should be. Things like going out and seeing local businesses and introducing yourself, cannot be done nationally. So, you want to have a very good plan, and make sure that you’re providing the franchisees all the tools they need and the training to execute effectively. It’s important your directions on marketing are complete system not just a list of suggestions. A lot of franchisors struggle because they give franchisees suggestions of what to do locally instead of complete systems on what to do. But I digress.
As far as the different funds, we typically have a national fund which can be referred to as a national advertising fund, an advertising fund, a national marketing fund, and all sorts of different things. And then we typically have a local spend, which we just discussed a little bit, and then you’ll have a co-op, a co-op is usually the combination of the first two, meaning the franchise owner can take the contributions a franchisee must make every month to their local marketing and the national marketing and combine them and direct the funds for special projects.
A Co-op should not be above and beyond the national and local spends. The Co-op should just be a re-allocation of those fees.
Another fee we are often seeing is a separate technology fee. The technology fee is very smart to annex from the other two. These are black and white type items that are likely going to be run by third party companies like Pay Per Click, Search Engine Optimization, email hosting and website updates, things like that. We know that those are consistent items within any franchise now. So, having them as a separate standard flat fee probably makes a lot of sense and people will get a lot of value from a clean, separate fee and know exactly where the money is spent.
Depending on the type of franchise, the corporate office may be managing large campaigns like national television campaigns while there are franchises who get almost all their business over the Web, who are spending the bulk of the National Ad Fund in combination with the technology fee in order to drive the business.
When determining the different advertising fund fees, and what is to be managed locally and what should be done nationally, it is important to ensure the activities to be performed locally are going to actually get done regularly and effectively. To the earlier comment about what you should do centrally and what you should do locally; the main deciding factor was can you do it better nationally? If you can then, you should do it. Then we said, if they could do it better locally, then they should do it locally.
However, are they going to do it? One of the big pitfalls happening with franchisors is they figure- oh, this is an easy thing to do. The franchisee can do it locally- not realizing the franchisee has many other tasks on your plate each day. And the first thing that they’re going to put on the back burner when there is a problem, or other things to do is the marketing.
For example, something as simple as social media, franchisors have really struggled with because social media is performed better locally, having a personal localized touch, your social media is much more effective. Very few franchises have cracked the code of how to get the franchisees to be effective at local marketing. From a social media perspective, one thing to consider might be a brand ambassador requiring every franchisee to have somebody on their staff that only deals with marketing. They purely deal with marketing; they have no other responsibilities. Therefore, anything that you annex to franchisees to be done locally will fall on this person shoulders who is not being distracted by any other duties. This approach can be remarkably effective.
Another really important aspect to consider in regard to the National Advertising fund is what fees you are going to run through the advertising fund. Some franchisors are very conservative and only charge for direct marketing like running TV or radio ads, creating a brochure, or just the creation of the TV and radio ads. They will run these items through, but they do not put any salaries or administration or travel through the fund. This extreme is probably not idea, you do often need to offset some administrative fees and salaries. If you want to have high quality staff running the ad fund, it is okay to take some of those items, but be a little bit cautious. When you start putting meals in, expensive hotel rooms, travel, and high administrative fees, that can be troublesome as well. It needs to be a balance and reasonable. Franchisors should want national funds to be used effectively because that is going to drive higher royalties because you will have higher store volumes.
A few other things to note before we end our episode is making sure that your sales team knows how to explain the great benefits of a well-run ad fund. There are a lot of times you’ll hear attorneys and franchisees barking about spending all the money that they give you back in their market locally. That’s just a real misunderstanding of the value of an ad fund and it comes from people probably seeing commercials for the big, big franchises all the time. Demanding all the money be spent locally is a misnomer because those brands likely have units everywhere commercials are running. Mostly these commercials are for things like food, and people need to eat three times a day. In those cases, commercials make sense. Unfortunately, in smaller brands and many service brands national ads would hit markets without full coverage and reach consumers who don’t have a need for the product or service. In the advertising world this is called waste. There’s no waste, because if you’re Pizza Hut running a pizza tv ad, pretty much everybody that sees it, young or old, rural or city, they all have to eat three times a day. And Pizza Hut probably has a franchise unit pretty close to anyone seeing the advertisement, so, you don’t have any waste. Whereas, if you are a plumber or garage door repair and you’re running those types of ads, you may not have a unit even close to them. Secondly, they may not need the service when they see the tv ad, conversely everybody needs to eat every day. You can see that people’s understanding of the ad funds are sometimes skewed by these big brands. So, it’s important that your sales team really knows how to explain the national franchise advertising program and the benefits. As the franchisor, instead of just waiting once a year and releasing the mandatory accounting of the fund, it is important to explain to the franchisees regularly what you are doing. Explain the management of the fund pertaining to the national level, regional level, and on a local level. Make sure the franchisees understand how the money is spent and how it enhances what they are doing locally, so that they can see that all the National Ad Fund efforts actually assist the local. Explain by managing the fund well you are stretching all the marketing dollars. So, a franchisee who is spending three, four, or five thousand dollars monthly may be getting the effective value of eight, nine, $10,000 of marketing.
So that is a little bit about the franchise or ad fun. We hope you enjoyed it!
Of course, as always, if you have detailed questions or specific questions about your situation, feel free to put them in the comments or contact us offline and we’d be happy to answer your questions in more depth. And if there’s any other topics you’d like covered, please put those in the comments and we’ll also create some videos on those topics as well.
