In Short
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Marketing and advertising clauses can require franchisees to contribute to marketing funds or local promotions.
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The franchise agreement should clearly state how funds are collected, used and reported.
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Unclear clauses can lead to disputes about costs, control and expected benefits.
Tips for Businesses
Read marketing and promotions clauses closely before signing. Check how much you must contribute, who controls the fund and how spending is reported. Budget for both national and local campaigns. Keep records of contributions and review fund reports so you understand how your money is being used.
Summary
This article explains marketing, advertising and promotions clauses in franchise agreements for franchisees and franchisors in Australia. It guides business owners through common legal issues and is prepared by LegalVision’s business lawyers, who specialise in advising clients on franchising.
As a franchisee, your business’s marketing strategy is crucial to its success. In particular, the franchisor’s pre-established brand reputation and successful marketing and promotional strategies can be highly valuable. As such, it is important when reviewing your potential franchisor’s franchise agreement that you understand each party’s marketing responsibilities and how you can promote your business. This article will explore key types of marketing franchises use and how they affect your franchisee responsibilities.
Brand Marketing
A franchise network is like a commercial ecosystem. It consists of several individual businesses operating independently under the same brand umbrella. Hence, one of a franchisor’s primary concerns is maintaining brand consistency and creating an identifiable image for the entire franchise. A clear example of this would be with fast food chains such as Subway. Whilst each local Subway may have its own promotional strategy, consumers globally recognise its slogan, ‘eat fresh’.
This type of marketing is called brand marketing. Most franchisors will undertake large-scale marketing and promotional activities to control how their brand is marketed and perceived. To fund this brand marketing, your franchisor may require you to pay a marketing fee. This could be either a fixed amount or as a percentage of your revenue. Depending on the franchise agreement, this fee could be paid on a weekly or monthly basis. Your franchisor will then consolidate these payments into a centralised ‘marketing fund’.
What is a ‘Marketing Fund’?
It is not unusual in a franchise agreement to be required to make regular contributions to a marketing fund. These contributions will then be utilised for the national promotion of the company’s brand. For example, the franchisor may use the fund for:
- television or radio campaigns;
- social media product placements with influencers; or
- online advertising on specific websites.
The Franchising Code of Conduct (the ‘Code’) requires franchisors to keep detailed records of marketing fund expenditures. The Code also requires the franchisor to finalise the marketing statements and an auditor to audit them. This should happen no later than four months after the end of the financial year. An auditor will then prepare a report and attach it to the financial statement.
As a franchisee, you should carefully review the marketing fund statement. This allows you to examine if your contributions are benefiting your business directly. If you feel the franchisor’s marketing expenses are not well-directed, you can then discuss this with other franchisees and the franchisor themself.
Continue reading this article below the formWhat is ‘Local’ Marketing?
Although your franchisor may manage the high-level marketing, you will often be responsible for conducting local marketing directly within your own territory. This marketing will usually be at your own expense, and some franchise agreements may dictate that you spend a minimum amount on local marketing every week, month or year.
Importantly, the franchisor’s marketing team will usually provide the materials or marketing plan you are expected to use. The franchise agreement may dictate that you have to use these marketing materials in promoting your business. It may be worthwhile to discuss marketing strategies with your franchisor before you commence operating your business. If you wish to implement your own marketing campaign and strategies, you should carefully review the terms of your franchise agreement first. This is because conducting your own marketing without the franchisor’s approval may violate the franchise agreement.
Ultimately, as a franchisee, you know your business and the community in which it operates, whilst the franchisor understands the overall brand image. As such, it is important the two of you maximise your franchise relationship and work together in determining the best strategies for your specific franchise.
Social Media
In modern franchising, social media is becoming an increasingly useful marketing tool. As a franchisee, you will likely want to run your own social media accounts to promote your business and improve brand awareness. However, many franchise agreements will contain clauses expressly prohibiting franchisees from conducting their own social media without the franchisor’s express approval. Alternatively, they may require the franchisor to approve all social media posts before publishing. This is because the wide reach of social media makes it more akin to brand marketing than local marketing. Franchisors, therefore, want to carefully manage how their brand is promoted online and through social media. Be sure to review your franchise agreement’s social media marketing clause before setting up your own account and posting content, as this may be a breach of your franchise agreement.
This cheatsheet outlines franchisors’ legal marketing fund obligations.
Key Takeaways
As a franchisee, you must understand how your business will be marketing and where and how your money is being spent. There are three key types of franchise marketing, which are:
- franchisor-conducted brand marketing, which is franchise-wide and may involve collecting marketing fees for a joint marketing fund;
- local marketing for each individual franchise, which the franchisee will conduct at their own expense; and
- social media marketing, which the franchisor generally controls.
LegalVision provides ongoing legal support for franchisees and franchisors through our fixed-fee legal membership. Our experienced lawyers help businesses in the franchising industry manage contracts, employment law, disputes, intellectual property and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
Brand marketing involves large-scale promotional activities managed by the franchisor to maintain brand consistency and reputation across the franchise network. Franchisees may contribute to these efforts through marketing fees.
A marketing fund is a centralised pool of contributions from franchisees, used for national promotions such as advertising campaigns. The franchisor must provide detailed financial statements and audits of the fund as required by the Franchising Code of Conduct.
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