You split the marketing budget between franchisor and franchisee by distinguishing three budgets: the joint marketing fund, the franchisee's local budget and the franchisor's growth budget. The fund pays for national brand marketing and the local baseline for every location. Extra local promotions and the recruitment of new franchisees fall outside it. That way it is clear to everyone who pays for what.
In brief: splitting the marketing budget between franchisor and franchisee
- Most franchise brands have three budgets: the marketing fund, the franchisee's local budget and the franchisor's growth budget.
- The fund pays for national brand marketing and the local baseline for every location.
- The franchisee pays for extra local promotions, within the franchise brand's rules.
- The franchisor pays for recruiting new franchisees from its own budget.
- Use an allocation key that can be explained to the franchisee advisory council.
- Account for the fund with a report per location; that prevents most disputes.
What are the three marketing budgets in a franchise brand?
Many disputes about marketing in franchising arise because budgets get mixed up. A clear division helps.
| Budget | Who pays | What for |
|---|---|---|
| Marketing fund | Franchisees via the marketing fee | Brand marketing and local baseline per location |
| Local budget | The franchisee | Extra local promotions, events, advertising |
| Growth budget | Franchisor | Franchisee recruitment, new markets |
How do you split the marketing fund between national and local?
There is no fixed ratio, but in practice we see franchise brands often underfund the local baseline, even though that is where visits come from. We recommend funding the local baseline per location first (profile, reviews, location page) and the national campaigns after that. A worked example for a franchise brand with thirty locations:
| Item | Calculation | Per year |
|---|---|---|
| Local baseline (Growth package) | 30 × €250 × 12 | €90,000 |
| Local advertising (baseline budget) | 30 × €150 × 12 (example) | €54,000 |
| National brand campaigns | Remainder of the fund | Depends on fund size |
| Reporting and support | Part of the package | Included |
Which allocation key do you use for local budgets?
When allocating local advertising budget from the fund, four keys are common. Each key has pros and cons; the best choice depends on how different your locations are.
| Key | Advantage | Disadvantage |
|---|---|---|
| Equal per location | Simple, feels fair | Large locations get too little |
| By turnover or fee | In line with contribution | Small locations do not grow |
| By market potential | Budget where the demand is | Requires data and explanation |
| Baseline plus performance | Motivates and stays fair | Requires good measurement |
How do you record the split?
In the franchise manual, with a summary in the agreement. Record what is paid from the fund, how local budget can be used, who decides on spending and how you account for it. Discuss the split every year with the franchisee advisory council, based on the figures per location. How the marketing fee itself works is explained in the franchisee marketing contribution. Have legal agreements reviewed by a franchise lawyer.
How do you account for the marketing fund to franchisees?
With a report per location. Show what was done for the location, what it delivered in visibility and customer actions, and how the location scores compared with the average. An annual overview of fund spending per category belongs with it. In our experience, most of the debate about the fee disappears as soon as franchisees see their own figures. How to measure that is explained in calculating return per location.
What mistakes do you see when splitting the marketing budget?
- The entire fund goes to national campaigns, while local profiles are neglected.
- Franchisee recruitment is paid from the fund.
- Local budgets are allocated without measurement.
- Franchisees advertise on the brand name themselves with their own budget.
- There is no annual evaluation with the franchisee advisory council.
How to combine national and local online marketing is explained in the split between national and local; the organisational model behind it in hybrid franchise marketing.
How do you discuss the split with the franchisee advisory council?
Prepare the conversation with figures per location. Show what the fund delivered last year, which locations lagged behind and why you are proposing a different split. Present two or three scenarios with their consequences, rather than a single proposal that can only be approved or rejected. Record the outcome in the manual and agree when you will evaluate it. In our experience, franchisees readily accept a shift from national to local, as long as they can see it benefits their own location. A shift the other way requires much more explanation.
What changes as your franchise brand grows?
With every new location the fund grows, but so does the local baseline you need to fund. So work with an amount per location for the baseline, so the fund grows automatically. New locations often get extra budget for an opening campaign in their first months; agree in advance whether that comes from the fund or from the growth budget. That way you prevent existing franchisees from feeling that they are paying for the franchise brand's growth.
Who is behind this approach to splitting the marketing budget between franchisor and franchisee?
The approach on this page comes from our team's practice. Gijs Bodenstaff built up a franchise brand himself and therefore knows both sides: the head office that protects the brand and the location that has to attract customers with it. With Stanley Leijnse (chair of Stichting LODAK) he examined 500 Google Business Profiles of the 100 largest Dutch franchise chains. Angela, Elisabeth, Peter and ten trained freelancers carry out the work per location, following one method and with weekly training on changes at Google.
You can read more about the team about Franchise-Marketing.nl; the author's background is on Gijs Bodenstaff.
Frequently asked questions about splitting the marketing budget between franchisor and franchisee
Who pays for local marketing in a franchise brand?
Can franchisee recruitment be paid from the marketing fund?
Which allocation key is the fairest?
How often should the split be reviewed?
How do you avoid disputes about the marketing fee?
Can a franchisee spend extra local budget?
What is the difference between the marketing fund, local budget and growth budget in franchising?
What share of the marketing fund should go to local marketing per location?
Where do you record how the marketing budget is split in a franchise?
Who pays for the opening campaign of a new franchise location?
Sources
Gijs Bodenstaff
Franchise marketer, local SEO and GEO specialist, author
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