Franchise advertising funds: what to assess before you buy

The advertising contribution may look modest in the sales presentation, but it is a recurring obligation that deserves a separate assessment. Before joining a franchise network, find out how much you will pay, which expenses the fund can cover and how you will track results. The aim is not to demand that every campaign benefits your outlet equally, but to understand the rules governing a collective fund before committing your budget.

1. Identify what you are being charged

An advertising fund generally pools contributions to promote the brand and support activities covered by the network’s rules. It should not be confused with royalties, which pay for other aspects of the franchise relationship, or with your outlet’s local advertising budget.

Ask for an itemised list of all communications and marketing obligations. A single outlet may face a collective contribution, a minimum local advertising spend, an opening campaign and charges for promotional materials.

For each item, record:

• Calculation basis: a fixed amount, a percentage of turnover or another formula.
• Frequency: monthly, annual or campaign-specific charges.
• Minimum charge and adjustments: whether a minimum amount applies and how charges are updated.
• Additional expenses: creative production, agency fees, platforms and materials.
• Exceptions: delayed opening, temporary closure or periods with no sales.

If the charge is based on turnover, check the contractual definition: are cancelled sales, discounts and returns included in the calculation? Do not assume the formula is the same as the one used for royalties.

2. Check what Brazilian law requires

Law No. 13,966/2019, Brazil’s current Franchise Law, replaced Law No. 8,955/1994. It requires the franchise disclosure document, known in Brazil as the Circular de Oferta de Franquia (COF), to provide clear information on periodic fees and other amounts payable by the franchisee to the franchisor or designated third parties. This must include how those amounts are calculated and what they pay for or are intended to fund. Advertising fees are expressly covered.

The law also requires information on whether a franchisee council or association exists, its responsibilities, powers and arrangements for representation before the franchisor, as well as details of the responsibilities for managing and overseeing the use of any existing funds.

This does not mean that every network must establish a council, or that each franchisee has a veto over campaigns. You need to identify which mechanisms actually exist and which rights are set out in the documents.

The COF must be supplied at least ten days before you sign the agreement or preliminary agreement, or pay any fee to the franchisor or a person or company connected with it. Use this minimum period to clarify the charges; do not treat it as a maximum period for your assessment.

3. Examine who makes decisions and how spending is reported

Ask for the fund’s rules, where these exist, and locate the provisions governing its administration in the agreement. Ask who approves the budget, selects agencies and authorises exceptional expenditure. If there is a council, check its composition, how representatives are chosen and whether it has decision-making powers or is purely advisory.

Ask for examples of reports from previous periods, where available. A useful financial statement distinguishes between contributions collected, expenditure, the remaining balance and commitments already made. Reports containing campaign images but no figures do not answer the same questions as a financial account.

Also check whether there are provisions for access to documents, independent review or a procedure for challenging expenditure. Do not assume that an audit is mandatory simply because the charge is described as a fund contribution.

Payments to the franchisor itself or related companies, administrative expenses and activities aimed at selling new franchises deserve particular clarification. Ask whether these uses are permitted and where that authorisation is documented.

4. Assess the benefits without mistaking them for a sales guarantee

A brand-building campaign can strengthen the brand without generating immediate enquiries for every outlet. Distinguish between objectives relating to brand awareness, customer acquisition and product promotion.

Ask for examples of activities carried out in cities with characteristics similar to those of your proposed location. Look at geographical coverage, target audiences, the channels used and the criteria for allocating sales leads. Network-wide data can conceal significant differences between locations.

Also check how much you will need to spend yourself. If the network requires local advertising, clarify who approves the creative materials, which suppliers you may use and who will have access to advertising accounts and campaign results.

A collective contribution is not a promise of turnover. Assess whether the plans are coherent and the performance measures transparent, rather than relying solely on presentations highlighting extensive social media reach.

5. Reflect the answers in your budget and agreement

Build sales scenarios and, for each one, calculate the collective contribution alongside mandatory local spending. Account for minimum charges and opening costs separately, so that an immediate expense is not obscured by monthly averages.

Compare the COF, the agreement and the fund’s rules. Any discrepancies concerning fee adjustments, permitted expenditure or oversight should be clarified in writing and reviewed with a legal adviser before you sign.

Practical conclusion: proceed when you can explain how much you will pay, what the money can be used for and how you will monitor it. A franchise network benefits from coordinated advertising, but trust needs to rest on verifiable rules.