Buying into a Canadian franchise is a big investment,...
One thing you will come across when researching Canadian franchisees is the concept of the advertising fee. Generally, this is a maintained bank account handled by the franchisor to which all franchisees contribute fees that may be a fixed rate or a percentage of their sales. The money in the fund is then used by the franchisor at its discretion, but it's meant for activities that will benefit all franchisees across the system and to promote overall brand awareness.
On the top of an obligation to pay into the main advertising fund, you may also be required to do local advertising in your own territories, such as community sponsorship, search engine optimization, printed ads and brochures. Some franchisors even have co-operatives for advertising, which are controlled by franchisee groups for conducting marketing across entire territories.
What's the cost?
Advertising fee costs vary by franchise, with many conventional opportunities hovering around two to three percent of your sales for the main fund and one percent to be spent locally. These fees tend to be due around the same time as your royalties, and franchisors usually audit or review franchisee activity to confirm you're meeting your local marketing spending requirement.
Sometimes, franchisors organize collective marketing and allow you to pay into that as a credit toward your obligation fees. For example, if a marketing company is hired to handle social media campaigns with an eye on local engagement, you may be asked to contribute, but that money will go toward your advertising fee contribution requirement.
What should I look for?
When you're considering advertising fees, you need to be aware that you may not benefit directly from the amounts you contribute, and this will probably be spelled out in some way in the franchise agreement. Take a close look at what types of activities the ad fund usually supports so you have an idea of where your money will go and whether you're comfortable with it. Some franchisors, for example, may use part of the money to find new franchisees. This can help grow the system but may not be something you're comfortable with. You should also check the disclosure documents, which should include how much ad fund money has been received and how much was spent over the last two years.
Advertising fees can help an entire system grow its brand and raise its profile, which is something that will benefit everyone involved. Just make sure you take a look at the fee system for the franchisors you're considering so you know what to expect.