Pay Close Attention to Your Franchisor’s Ad Campaigns

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Interview with franchise expert Bruce Schaeffer, president of Franchise Valuations.

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Another one of the key elements of a franchise is the system-wide advertising that can be obtained. Now when a franchisee is analyzing whether or not to purchase this franchise, you have to take this advertising into account because it’s so important. Normally, a franchisor will require a franchisee to contribute to not only a national advertising fund but also frequently to local advertising funds. They also often have specific mandates as to the amount that has to be spent on sometimes local print advertising, sometimes local flyers, all the methods that the franchise system has determined are essential to advertise and get the franchise name and opportunities out there are usually part of the business format. So a franchisee has to take into account, number one whether this national advertising will be beneficial to them in their particular locale; number two whether local advertising will be beneficial to them in their location and whether or not it will have an effective cost benefit, in other words, is it going to be more expensive than it’s worth on the local level? This is an aspect that has to be considered primarily in large cities where certain types of advertising are far more expensive than they are in smaller markets. The franchisee also has to take into account whether or not the vehicles selected by the franchisor for its national and local advertising are ones that will have an impact in their particular neighborhood. So overall, a franchisee not only has to look at the benefit but also how the franchisor holds and accounts for these revenues that they collect that are supposed to be spent on advertising. There have been many issues, disputes, and even litigations in franchise systems that have come up over the years with respect to how franchisors hold, administer, and charge these advertising funds. Oftentimes, franchisors charge substantial commissions for placing the advertising and actually overcharge the franchisees so potential franchisees really have to take a close look at the advertising expense as well as the effectiveness of the system-wide and local advertising that is a very substantial component of the franchise situation.


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