We will never forget a small franchise network’s conference when the marketing report was delivered and discussed. The report covered the opening balance, the income and expenditure, and the closing balance.
Basically, the fund received and spent $150,000 in the same year. The expenditure was explained:
- $50,000 on radio
- $50,000 on Google Ads
- $50,000 on print advertising
The number of inquiries, resulting jobs and the ad spend/job were presented alongside each spend.
It was abundantly clear where the money had been spent and also how effective each medium had been. The franchisor duly commented that one had been a “bad call” and ”sorry about that, we should have stopped it sooner.” The franchisor then followed with future plans which included dropping the poor performing medium and investing equally across the two impactful areas.
The franchisor then asked franchisees for a show of support for that plan and duly received a unanimous show of hands. Job done! And a great job, we’d say, as this franchise system had other challenges. So it was great group marketing (which can be a contentious area) wasn’t one of them.
Most franchise systems have a Group Marketing Fund that comprises money contributed by franchisees and company stores for the purposes of marketing the brand on a nationwide basis.
This fund is widely regarded as being held in ‘trust’ on behalf of franchisees and the franchisor (for company stores) due to their individual contributions – often relative to the scale of their individual unit-level businesses.
It follows that franchisees naturally expect to know that the fund is being managed and expended in a professional and effective manner. Accordingly, a key process associated with marketing fund management is reporting on the fund.
Franchisor obligations for such reporting are typically specified, at a high- level, in the Franchise Agreement and may be expanded upon within the Franchisee Manuals.
In some countries, like Australia, there are similar and potentially greater obligations required by law, as per their mandatory Franchising Code of Conduct.
At the very least there should be an annual group marketing report covering the following:
- A detailed statement of income and expenditure for the period
- The opening and closing balance of the group marketing fund
- A breakdown of any administration, staffing or other category expenses vs marketing / advertising expenses.
Note: the breadth of income and expenditure (and reporting) should reflect the direction of the Group Marketing Fund as defined in the franchise agreement, franchise manuals, franchise recruitment and disclosure information, and any applicable law.
The Group Marketing Fund report should include information that is meaningful to franchisees, both in terms of marketing fund sources of income and expenditure. A good group marketing report will provide a useful and insightful breakdown of actual marketing expenditure and, ideally measures of associated effectiveness.
It is worth noting that some franchising companies may choose to have their marketing fund’s financial statements audited annually. Aligned, we note that this may be mandatory in some circumstances.
Group Marketing Fund management transparency is an important consideration for a healthy relationship. This was illustrated by the example above, where the $150,000 collected was spent on marketing activities, franchisees should not only see the breakdown but also learn about and be involved in considering its effectiveness.
Relevant questions:
- Do you report your Group Marketing Fund spend to franchisees and, if so, how regularly?
- How much detail does your Group Marketing Fund report contain and should it provide more?
About the Franchising Best Practice 500 Series
This is part of a series of franchising best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.
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