What you need to know about the franchise advertising fee.
Often times you see a franchise advertising fee cost when researching businesses to own. What is the franchise advertising fee, and why do you only see it mentioned sometimes? It is an annual fee paid by the franchisee to the franchisor for corporate advertising expenditures; usually less than three percent of the franchisee’s annual sales and usually paid in addition to the royalty fee. Not all franchisors charge advertising fees.
What is the average franchise advertising fee?
Depending on the franchise, they can be fixed dollar amounts, on-going fees based on sales or even based on the number of vehicles used in a franchise program.
Several have a minimum fee requirement but there are others that have no advertising fees at all.
The average advertising fee ranges from 3-5%. For example, Subway, a large food franchise system with a national advertising campaign has a 4.5% advertising fee.
What does the franchise advertising fee pay for?
Franchise systems employ different types of advertising programs based on their industry and business model. The three most common are:
National – large scale advertising efforts for national branding
Local – specific to the franchisee and advertises their specific unit
Regional or Co-Operative – targets a geographic area
The advertising fee pays for the ad campaigns and advertising to promote the franchise. One of the most important times for a system’s advertising efforts is during the grand opening of the franchise. But it includes the on-going plan throughout the life of the business: TV, print, radio, internet, smart tvs, mobile devices, tablets, online videos and social media.
How can I compare franchise advertising fees?
There are a number of sources that publish data on fees that can help you compare the advertising fees in franchise systems. Entrepreneur 500 publishes a study each January where you can compare all major franchises with their competitors in a clear and concise format.
Also, you’ll find the advertising fee outlined in the franchise’s FDD (Franchise Disclosure Document).
Keep in mind that not all franchise systems are created equal when it comes to advertising fees. Large systems have national marketing alternatives that smaller systems do not. So don’t judge a book by its cover when it comes to the fee alone. Speak to other franchisees and look at the bottom line and the business that advertising fee is bringing in through the door.
To consider a franchise or business opportunity to own, start exploring the directory at Franchise.com.