Where Did My Marketing Money Go?

By Tam Goldsmith

Tam asks whether franchisors are properly accounting for the marketing money franchisees contribute.

Franchisees Pay Into Marketing Funds Every Month. Tam Goldsmith Asks Whether Franchisors Are Giving Them Enough Information About Where the Money Went and Whether It Worked.

Most franchisees know exactly how much they paid into the marketing fund last year. It sits in the accounts alongside royalties, rent, wages and all the other costs of running the business.

Ask what they got for that money and the conversation can become a little less straightforward.

They will have seen some of the activity. Perhaps there was a national advertising campaign, more social media, a promotion, new photography or a sponsorship deal. There may also have been a presentation from head office showing reach, impressions or an improvement in brand awareness.

All of that has its place. But if I were a franchisee paying thousands into the fund every year, I would still want to know what happened to my money and whether the marketing did anything useful for my business.

I don't think that is an unreasonable question. Marketing contributions are compulsory in many franchise agreements and are commonly linked to sales. The franchisee pays when business is good and continues paying when margins are under pressure. If a franchisor is collecting that money, there should be a proper account of how it is being used.

We Are Talking About Serious Money

Take a franchise doing $1 million in annual sales with a 2% marketing contribution. That business puts $20,000 into the fund every year. Across 100 similar locations, the franchisor is responsible for $2 million of franchisee contributions.

Pooling that money makes sense. One of the advantages of joining a franchise is being able to do things collectively that would be difficult or expensive for an independent operator. A network can buy media, employ specialist agencies, produce better creative work and run campaigns across a much larger area.

The problem comes when franchisees see the contribution leaving their bank account every month but hear very little about what happened to it afterwards.

I am not suggesting head office sends everyone a folder of agency invoices. That would achieve very little. But there is a considerable gap between showing franchisees every receipt and telling them almost nothing. If somebody is contributing a meaningful amount of money each year, they should be able to understand where the bulk of it went.

Please Don't Tell Me It Was All About Brand Awareness

Marketing is not an exact science and we should stop pretending that every pound or dollar spent can be traced neatly to a sale. Customers may see an advertisement several times before buying. Sponsorship can keep a brand visible without producing an immediate transaction. Some campaigns take time to have an effect.

But that cannot become an excuse for avoiding sensible measurement.

If a campaign was intended to bring more customers into stores, we can look at transactions. If it promoted a particular product, we can look at sales. Digital campaigns give us information about enquiries, clicks, acquisition and conversion. Promotions can be compared between locations and against previous trading periods.

Occasionally, those numbers will tell us that the campaign was disappointing. I would much rather hear that than be shown another slide explaining that everything was wonderful because brand awareness increased.

Marketing sometimes fails. Franchisees know that because they run businesses themselves. The important part is knowing why something underperformed and deciding what should be done differently next time.

Franchisees See Things Head Office Doesn't

One of the advantages of a franchise network is having people on the ground in dozens or hundreds of local markets. We do not make enough use of that.

A franchisee knows which nearby employer sends staff in at lunchtime, which local event fills the area with families and which promotion attracted plenty of bargain hunters who never came back. They hear customers talking and often know surprisingly quickly when something has changed.

That information is worth having.

If franchisees in several markets are getting good results from similar local partnerships, perhaps the franchisor should investigate whether the idea can work elsewhere. Equally, if head office has spent heavily on a national campaign and operators are reporting little change in customer activity, somebody should be asking why.

National marketing gives the network scale. Franchisees provide the local knowledge. The best results usually come when head office is willing to listen as well as instruct.

Just Tell People What Happened

I would make marketing fund reporting a normal part of running the network.

Every quarter, franchisees could receive a straightforward account of how much came into the fund, where the major amounts were spent and which campaigns ran. Tell them what each campaign was supposed to achieve and share the results that can reasonably be measured.

Then tell them what you are going to do with that information.

If something performed badly, explain what will change. If something worked particularly well, tell franchisees whether it will be repeated or expanded. If the results are inconclusive, say that too.

This is how franchisees already run their own businesses. When labour costs rise, they investigate. When a product does not sell, they stop ordering so much of it. When a supplier becomes too expensive, they ask questions. Nobody would tell a franchisee to keep spending money without checking whether it was worthwhile.

Head office should be prepared to apply the same discipline to the money it collects from the network.

The Questions Don't Go Away If You Ignore Them

Franchisees are never going to agree on every marketing decision. One will want more money spent locally while another wants a bigger national campaign. A franchisee in a mature market may have completely different priorities from somebody trying to establish the brand in a new city.

That is normal.

The real problem starts when franchisees lose confidence in the fund itself. Once they believe their money is disappearing into campaigns that have little connection to their businesses, every future marketing discussion becomes harder. Ask them to support another promotion or spend additional money locally and the response is likely to be predictable: what happened to the money we already gave you?

Good reporting will not prevent those disagreements, but it gives the franchisor something solid to work with. Head office can show what was spent, what was tried, what happened and what was learned.

I would have far more confidence in a franchisor prepared to say, "We spent money on this and it didn't work as well as we expected," than one that somehow manages to declare every campaign a success.

Franchisees understand that marketing involves judgement and that occasionally money will be spent on something that does not deliver. What becomes difficult to accept is paying into the same fund year after year without getting a clear explanation of where the money went.

If the fund is being managed well, showing franchisees what happened should not be a difficult conversation.

What We Can Learn From This

Franchisors should give franchisees a useful marketing fund report at least every quarter, showing what was collected, where the major expenditure went, which campaigns ran and what can reasonably be said about the results. They should also listen to what franchisees are seeing locally because some of the best marketing ideas may already be working somewhere in the network. Nobody expects every campaign to succeed, and franchisees will not agree with every spending decision. What they should expect is a franchisor willing to account properly for the money it asks them to contribute.

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