Is Your Franchise’s National Advertising Fund Doing Its Job? A National Advertising Fund (NAF) is supposed to maximize the advertising impact for the franchisor and all the franchisees in the system through a coordinated effort encompassing national, regional and local promotions.

Not surprisingly, the responsibility rests with the franchisor who must have a calculated marketing plan, as well as a clearly defined NAF as part of the Franchise Disclosure Document (FDD) so franchisees know what to expect when come onboard. Any time a fee is assessed, knowing what it’s for is vital for agreement and compliance.

That’s a tall order.

The Result of Thoughtful Planning

The National Advertising Fund is not a slush fund, nor is it like the “trip jar” where you dump change to save for some future, as-yet-undetermined destination. A savvy franchisor will have defined marketing goals for the NAF, know how much money is needed, how the funds are to be allocated, and how the Fund should be set up and maintained for the most effective and efficient management. They also believe the franchisees have a right to know how the Fund works.

The nuts and bolts of a comprehensive National Advertising Fund could include:
  • A yearly marketing calendar showing campaigns and marketing strategies.
  • Allocation percentages for national, regional and local marketing.
  • Establishment of a committee, council or advisory group of both corporate and franchisee participants that regularly meet to evaluate and discuss marketing success.
  • The franchisee fee structure, what is covered by those fees and any penalty for non-payment.
  • Availability of an annual audit or disclosure of how NAF funds were spent: direct advertising, administrative, overhead, outsourced agencies, internal marketing teams, funds used to solicit new franchise sales, etc.
  • Any expectations for a franchisee’s additional out-of-pocket local advertising costs.
The more explicit the definition of your National Advertising Fund in your FDD, the less room there is for confusion and misunderstanding on behalf of your franchisees. And, there’s less likelihood of lawsuits by franchisees alleging mismanagement of funds by the franchisor or of the franchisor suing franchisees for non-payment of fees.

On their website, the Two Men and a Truck franchise posts a summary overview of their National Advertising Fund which focuses on the benefits for their franchisees:

A team of marketing professionals provide a broad array of marketing planning and support functions for the franchisees within the system through franchisee contributions to the national advertising fund. The purpose of the national ad fund is to pool dollars from across the system to develop, execute, test and monitor marketing strategies which provide a level of impact that might otherwise be price-prohibitive to individual franchisees. The fund provides the horsepower to more economically protect and promote the brand through large-scale efforts so that all franchisees may benefit. In addition, having a team of subject matter experts at the franchisee’s disposal is more critical than ever given today’s complex, multi-channel media environment.

Franchisees Weighing In: Pros and Cons

National Advertising Fund fees range from 1.0 to 5.0 percent of annual sales, most commonly 2.0 to 3.0 percent. With that much money involved, the Fund can become a controversial issue if not managed properly or transparently so that franchisees know exactly what they are getting for their participation. They need to see and understand the strategy for how the NAF and their own dollars are meant to work together.

Positive aspects for franchisees:
  • An ongoing, consistent national presence that benefits the franchise as a whole
  • Professional large scale advertising campaigns that are cost-prohibitive for individual locations
  • A solid advertising base that supports and coordinates with local marketing efforts
  • Direction and training in marketing and social media techniques
  • Opportunity to weigh in on marketing strategies
  • Visible, measurable sales results for their fees paid
Negative possibilities for franchisees:
  • Not seeing any monetary benefit from the NAF activities; not wanting to pay fees
  • Franchisor rejecting individual franchisee or advisory council input or concerns regarding marketing strategies
  • Franchisor is silent on reporting and accounting issues regarding use of the NAF funds
  • Franchisee feels their territory is not well-represented in the marketing scheme
  • Not understanding their obligation to advertise locally

Make the National Advertising Fund a Joint Effort

It’s to everyone’s benefit to ensure that the Fund works as hard as possible to enhance the franchise’s overall market position in order to drive customer traffic to all its franchise locations.

While the franchisor is the administrator of the NAF, making strategic decisions on how the marketing dollars will be spent should consider franchisee input and include collaboration with the brand’s council or advisory group. Determining a balanced allocation of national, regional and local marketing based on set goals will keep the Fund on track and help ensure company-wide acceptance and compliance.

If done correctly, sound franchisor leadership can maintain an advertising fund that produces measurable results in increased sales for franchisees, enhanced brand marketing and eventually more franchise sales.

Images: Shutterstock and Graphic stock