October 19, 2016
There are many aspects of franchising that factor into the overall success. Creating the FDD, recruiting franchisees, and developing proprietary products typically take the spotlight. One that doesn’t receive a lot of attention is building out an effective advertising structure.
Despite its underwhelming attention, outlining advertising requirements plays heavily into gaining exposure for the franchise brand. The related advertising structure dictates how franchisees participate in the overall and regional marketing of the franchise.
In today’s competitive age, few businesses thrive without good marketing.
Adverting structures for franchises stipulates a certain amount that each unit invests into advertising. Rates vary by percentages (typically tied to gross revenue) or flat fees based on the individual franchise. Some franchises allow units to pursue their own marketing endeavors, requiring approved messaging and proof of spending.
Other models have units pool their advertising budget into a larger pot. The idea behind collective advertising is that companies can negotiate better deals, leverage larger creative campaigns, and afford more expensive advertising types through combining funds.
There are three main advertising models to explore:
Obviously, the most effective for each business depends on the specific business model and regions served. A franchise based solely in Southern California investing in a national marketing plan wastes valuable ad spending. On the other hand, brands like Subway or Tom N Toms can help raise national awareness when all the units chip in on a national level to fund a Super Bowl ad.
Local marketing structures require each unit to invest a certain amount into advertising. The approved marketing outlets and whether or not the efforts are collective depend on each franchise. All the local spending stays in the specific region of the franchise.
Co-ops typically are comprised of a few regional units pooling their advertising dollars together to focus in their local market. This can range from TV spots to radio ads to attention at a local sporting game. Depending on the maturity of the brand, there will be different structures for co-ops.
Larger brands pursuing wide-spread attention, such as advertising at high-profile events, will pull from a national fund. Every franchisee contributes to the branding and marketing efforts of the entire brand. With more locations contributing across the country, the franchise has the ability to make marketing plays on the Super Bowl, the New Years’ celebration, the Macy’s Day Parade, or other large events.
The size, location, and services offered of the franchise weighs heavily into final structure. A small surf franchise focused in New Jersey doesn’t need to invest advertising dollars into the Ohio markets.
A hip new pizza arcade venue might be better served to focus their efforts on social media ads. Franchises offering dog-walking services make more sense to focus marketing efforts hyper locally.
Additionally, some brands require more marketing to succeed. An ice cream shop on a busy boardwalk thrives on walk by traffic, limiting the need for too much additional marketing. Fitness gyms on the other hand spend more to attract members.
The marketing structure needs to match the most effective marketing measures for the brand and regions served.
In some cases, marketing fees don’t start the day the franchisee opens their doors. Instead, the franchise wants to generate buzz two to three months prior to opening in order to drive people to the business once it opens.
The other way to capture the neighborhood’s attention is to hold a grand opening. This varies from offering discounted product, incredible promotions, or giving away products.
Depending on the business model, it’s not uncommon to see grand openings and related advertising prior to opening in the $5,000-$10,000 range for brick and mortar locations.
Regardless of the model that is best for your franchise, all advertising structures must be outlined in the FDD and the franchise agreement. Franchisors define their marketing structure and grand opening costs based on what was successful for other units.
Fundamentally, this is the benefit of going with a franchise. The business has been narrowed down to a specific science on how to best operate.
If you are in the process of franchising, partner with an experienced franchise lawyer to help create your FDD and a strong foundation for long-term success. As a part owner in a franchise and an experienced franchise lawyer, I can help you determine the best route forward.