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The advertising fee is the second most common ongoing fee franchisees pay to franchisors. It’s an important subject to ask about during the franchise selection process – What advertising is the franchisee responsible for?
Franchise Advertising Fees
Advertising fees are typically divided into two categories: the national or general ad fund and the local or cooperative contribution. Sometimes, these two funds are combined into one collective amount. These amounts can be found in Item 6 of a traditional FDD.
National Ad Fund
Typically, the national advertising fund is a percentage of sales or revenue that a franchisee pays to the franchisor for advertising done on a national level. This includes TV commercials, brochures, billboards, print ads, and website development. This type of advertising benefits the franchise system as a whole, and all of a system’s franchisees benefit from national advertising.
Local Ad Fund
The amount for the local advertising fund is what every successful franchise owner in a system should be spending to promote their business. Local-level marketing efforts often make a better impact because they are focused on a defined audience. However, just because an advertisement is at a local level, that doesn’t mean a franchisee can run any ad they want. This is because a franchise business is subject to trademark protections.
Trademark Protections and Ad Development
One of the main reasons businesspeople invest in franchise opportunities is because a franchise is an already established brand. To solidify their brand, franchises file legal paperwork trademarking images, logos, slogans, sayings and other intellectual property that allow them to standout.
Details about the franchise’s trademarks and proper usage may be found in Item 13 of a franchisor’s FDD.
The franchisor has created a system that can be replicated by others. What the franchisee buys then is a license to use the system, including the right to use trademarks and logos. But the franchise is not buying the system or trademarks, only licensing them for the term of the franchise agreement.
Franchisees are not allowed to us any trademark in any way that is not approved by the franchisor. Fortunately, however, many franchisor’s value input from franchisees about creating more impactful ads. These ideas are generally brought forward by a franchisee council. By working together in advertising, a franchisor and its franchisees can reach and engage the greatest number possible for the brand.