Amie Larter
Hello and welcome. My name is Amie Larter and this is the Buying a Franchise podcast. Vital listing for anyone interested in buying or that’s in the process of buying a franchise. Today, we’re going to talk about what to expect when it comes to marketing within a franchise network and some of the responsibilities you need to consider as a potential franchisee. As usual, I am joined by Sarah Stowe, editor of Inside Franchise Business, Australia’s leading franchise hub, to help guide us through everything we need to know about the franchise buyers journey.

Now Sarah, I imagine that buying into a brand that has a strong presence, that is known nationally, is one of the major reasons for franchisees to invest.

Sarah
Absolutely. It really is. Marketing is one of the really key elements that franchisees are quite often nervous about. And it’s something that the franchisor can really make a difference with in their business because they’ve got the experience. Marketing is a science. And today there are so many nuances to successful marketing that it can be overwhelming for those of us that aren’t experienced. So if you’ve got a franchisor that can remove some of those stresses and strains, it really is quite appealing.

Amie
I can imagine. So what tips do you have for would -be franchisees when it comes to finding a business with strong marketing?

Sarah
Well, to begin with, it’s important to find a business that excels in optimizing its branding. So it’s about looking for a company that is well known among consumers, a brand that uses a mix of marketing channels to effectively deliver its message and invest in market research as well to ensure that its strategies are really resonating with the audience. It’s also important that the company is dedicated to communicating its core messages consistently to consumers.

I think if you think about marketing, it should be directed at ways that can both attract and retain customers. And the tools and strategies on offer at the franchise brand should be based on solid market research. So I think it’s good to look for a business that supports franchisee marketing with advice and an approval process to ensure that as the franchisee, you are optimizing your business potential.

Amie
Okay, I’m sure it’s not a one size fits all approach, but what does a franchisor do to market the business?

Sarah
Franchisors often do a considerable amount of marketing, as I’m sure you’d appreciate. And that effectively assists all franchisees. It’s very similar to a big brand at any level. But I think there are some clear distinctions in franchising from other major groups.

So if we think about retail, let’s consider a clothing chain like Cotton On. The brand promotions that Cotton On’s marketing team creates and implements is standard across all the stores and everything will be handled by the head office marketing team. So while at a national level, it is the same in a franchise, there are two distinct marketing elements. There’s the national, but there’s also local area marketing.

And the reason this distinction is important is because franchisees take responsibility for their own local area marketing. So knowing what marketing the franchisor is responsible for and what you have to provide as a franchisee really lessens the likelihood of misunderstanding and means that you have realistic expectations.

Amie
For sure. So what more can you tell us about this national marketing approach then Sarah?

Sarah
As I’ve mentioned, this is the brand marketing to consumers that any business will do, whether that’s Coca-Cola, Adidas, Jax Tyres, or Boost Juice. It’s part of an overall campaign that promotes a particular brand message, and it is likely to be part of a wider calendar of promotions which tell particular stories related to events, to seasons, products, pricing, the quality of service.

And in most franchise systems, there is a national marketing fund, and this is something that franchisees contribute to. And it’s considered that every single franchisee in the network is going to benefit from brand promotion at a national level. And as a general guide, this fund is invested in national campaigns which promote the brand on various media channels, whether that’s digital, social, TV, radio, print, billboard advertising – what you would expect from any kind of national brand.

Amie
Okay, and so, you know, realistically, a lot of this, a lot of what we speak about when it comes to the fundamentals for franchisee franchising, we always want to know about budget. So I’m keen to unpack marketing fund. Is there any limits about spending with the marketing fund? Is there a set amount that franchisees have to pay?

Sarah
Well, the amount that franchisees pay is as so many things with franchising up to the individual franchise also. So no, there’s no set amount. And in a sense, there’s no limit either. I mean, a quick scan of franchise brands will show that the marketing levy, it can be called a fee or a levy, is often between say 3 and 8 per cent of the franchisee’s turnover, but it could be below that, it could be above it. It could also be a fixed fee.

And again, franchisees can pay that on a weekly, monthly or quarterly basis. It is going to depend very much on the franchise agreement.

However, there are some clear rules around the use of the fund. And if you think about it, you know, you’re putting your money into the fund, you want to know what’s happening to it and you want to know that it’s controlled. So the fund can be used only for marketing purposes and for instance, any siphoning off of funds to bolster other elements of the business, however small, is considered a breach of the code, the Franchise Code of Conduct.

Amie
Okay, sure. So how do franchise buyers find out about the marketing requirements of a franchise?

Sarah
Well, there’s one really great source of information on a franchise brand’s marketing, and that’s the disclosure document. Now, we’ve talked about this in another podcast, but in essence, this document includes useful and reliable information about the franchise that will help prospective franchise buyers make an informed decision about their purchase.

So the informational marketing includes the amount the franchisees buying into that system will have to contribute to the marketing fund and for instance, whether some franchisees may pay more or less. Franchise buyers can find out who else contributes to the fund and who manages it. And importantly, the kind of expenses that the fund can be used for. I mean, you think that would be obvious, and most obviously it pays for marketing expenses, but they do have to be legitimate.

And of course, franchisors can also use it to pay for the reasonable costs of managing or auditing the fund and any expenses that participating franchises, most of them have agreed to pay. So there’s some rules around how this fund that everyone is contributing to can be used. It can also be used for costs that the franchisor has already told franchises about in the disclosure document.

So it really is important to read that document carefully. There are, however, no stipulations when we’re talking about what is legitimate marketing. There are no stipulations about what legitimate marketing or advertising expenses are. But it’s common sense. If something, you would consider something like a billboard or a TV ad would be a justifiable expense, whereas the franchisor’s decision to pay for their new EV and put a logo on the side may not be an acceptable advertising expense when it comes to the marketing fund.

Amie
So Sarah, are there any other rules that affect the marketing fund?

Sarah
Well, it’s probably worth heading back to the goldmine that is the disclosure document because the franchisor must provide more details about the fund and these are what will be in the document.

For instance, the franchisor has to reveal whether they will spend part of the fund on marketing or promoting the franchisee’s business and whether or not the franchisor or an associate supplies the goods or services that the fund pays for. As a franchisee, every year you must receive a marketing fund statement. And this will tell you how the funds are being used. So what’s quite useful for potential franchisees evaluating the business offer is information in a disclosure document about how the marketing fund was spent the previous year, including the percentages spent on production, marketing, administration, and any other expenses. So it pays to check this out to ensure that you’re happy for your money to be spent in the way that the franchisor is choosing to do it.

Amie
Okay, that makes sense. So if we turn our attention to local area marketing, can you explain what is different about this Sarah? Because I think this is probably going to be more so the responsibility from what you said, this could be more so the responsibility of the franchise or the potential franchisee.

Sarah
That’s absolutely right. So just to reiterate the first point, the national marketing is conducted by head office, but franchisees are also expected to develop their own marketing plans and programs within their own territories. And it’s really an essential part of the growth and success of the franchisee within their own community.

I’m sure you can imagine there will be a lot of different scenarios that can play out under the banner of local area marketing. And it’s essentially engaging positively with individual people with local groups and businesses and local media to get your brand out there. Your brand being the national brand, but it’s your business that you’re promoting.

Amie
I’m keen to understand Sarah because I also like to think I have a lot of creativity, consider myself, I’m definitely not a designer, but I love to design even though I’m a journalist. How creative can franchisees get with their own ideas and campaigns? And what if they don’t have any experience in this space?

Sarah
Those are two great questions, Amie. I think that firstly, while this marketing is initiated by the franchisee, it isn’t an opportunity for wild creativity.

Amie
So we’re not allowed to get Canva out, Sarah.

Sarah
Don’t get Canva out.

Most franchise agreements do stipulate that local area marketing has to have the approval of the franchise or and it makes sense because a lot of money is invested by that franchisor to develop, to promote and maintain the integrity of their brand. And that’s one reason why you buy into one.

It’s one reason why you buy a franchise. So it’s to everyone’s benefit that franchisees do follow the rules when it comes to marketing, as with everything else. So your franchisor may provide you with some guidelines and recommendations for conducting your own area, sorry, your own local area marketing.

And actually this relates to the second question. That’s the beauty of a franchise.

Because the head office marketing team can come up with the concepts, decide the best channels to promote and provide you with the best ways to enhance your business and boost customer loyalty. So this ensures that the local area marketing program also complements the brand’s national marketing plan, but it relieves you as a franchisee of all the research and development involved in creating viable marketing plans, which for most of us, without the marketing experience, is a really fantastic thing.

Amie
Yeah, I can imagine it’s probably for most people it’s really, really good. You get that marketing support from people that have got experience and so it makes so much sense. I’m keen to understand though, is there any room for creativity at the franchisee level?

Sarah
Well, it does depend on the particular franchise. I mean, I know that’s something that I say, I think, all the time, but it’s indicative of the franchising sector is that each brand has its own agreement and its own rules and regulations and compliance. So some brands are happy for franchises to suggest ideas and to work with the marketing team on implementing them effectively, whereas others are quite strict, really, on controlling the narrative and the visuals and they will provide material for franchisees to use. So it’s much more controlled.

I think what’s really important is that as a franchisee, you’re working with the brands to generate interest in your own area for your business. So even if you do have that creative element, you’re not reworking the brand marketing. Local area marketing is all about bringing customers into your store or your business.

Amie
Okay, and so how much should franchisees expect to spend on local area marketing in addition to contributing to the National Marketing Fund?

Sarah
Yeah, well, there’s a kind of a general expectation that franchisees will probably invest between one and one and a half or three percent of their turnover on local area marketing. And as you said, you know, this is over and above the national marketing contribution. The two have to be considered very separately. It’s worth finding out from the franchisor another franchisees in the group what typical monthly spend is and what kind of promotions that delivers and which ones the franchisees themselves have really found most successful.

Amie
Makes sense. So what are the most common mistakes franchisees make when it comes to managing marketing?

Sarah
I think the biggest danger is, Amie, is for franchisees to consider that their marketing activity is absolutely done and dusted because they’ve contributed to the national fund. It’s very important that businesses are promoting their own business and investing themselves in it. It’s not something that a franchisor is going to do.
And I think the other thing is that when franchisees do undertake marketing activities, following the rules is really important because failure to comply with the brand requirements and messaging really lets down the brand and it lets down other franchisees. So it’s a big no -no. So I think those two are the most important things to avoid.

Amie
Definitely, definitely sounds like something to avoid. All right, Sarah, do you have any final tips for someone that’s looking to buy into a franchise and can really considering this marketing side of the business?

Sarah
Well, I think now with so many marketing channels, it’s important to understand where responsibilities lie, where your responsibilities lie. So for instance, find out from the franchisor who manages the social media accounts and the pages on the brand website. That will be different according to each franchise. If there are omni-channel sales as part of the business, ask how the franchisor will handle the marketing that takes place in-store, online, through an app.

It’s important to understand as well the value of marketing your own business and be prepared to invest the appropriate amount to achieve strong results. It’s something that people can take shortcuts with, but I think the results, as I say, if you’re talking to franchisees about what works and how much money they spend, that gives you a good guideline as to what you will need.

And finally, I would absolutely reiterate the importance of studying the disclosure document because it really does provide some valuable insights on the particular franchisor’s approach to marketing.

Amie
Excellent, well thank you Sarah and thank you for listening to the latest episode of Buying a Franchise podcast. We’ll list in the show notes some other great resources and share details of other relevant podcasts and for anyone looking to buy a franchise visit franchisebusiness .com .au to see the latest opportunities.