Franchising in Canada: check the advertising fees

A well-known brand does not guarantee that your advertising contributions will bring customers through your door. Before joining a franchise network in Canada, examine how advertising is funded, who decides on spending and what financial reporting is provided. The aim is not simply to establish a percentage: you need to understand what you will have to pay and what the contract actually entitles you to expect.

1. Identify all advertising obligations

Advertising fees may be spread across several documents and cost categories. Ask the franchisor for a written list of mandatory contributions, then check it against the contract and its schedules.

In particular, distinguish between:

• contributions to the national or regional advertising fund;
• minimum local advertising expenditure;
• the launch budget for your outlet;
• contributions to a local advertising co-operative;
• separate fees for digital marketing management or the production of materials.

Check the basis of calculation, not just the rate. Does the definition of sales used in the calculation include orders delivered through a platform, sales paid for with gift cards or amounts before refunds? Are taxes excluded? An unclear definition can create a lasting gap between your forecasts and the amounts actually charged.

Also ask whether your local spending is payable in full on top of your contribution to the shared fund. A national campaign running in your town does not necessarily replace your local marketing obligation. Clarify payment deadlines, the supporting evidence required and the consequences of leaving part of your local budget unspent.

2. Understand who controls the fund and how it is used

A shared advertising fund generally serves the brand’s objectives. It is not necessarily a budget set aside for each outlet, nor a promise of proportionate spending in each market.

Ask for the latest available reports on the fund’s income and expenditure, along with its planned budget. If these are not provided, establish what information you will be able to access once the contract is signed. A lack of data does not prove poor management, but it limits your ability to assess the fund.

Your review should answer five questions:

• Who decides on campaigns and approves expenditure?
• What administrative costs or fees can be charged to the fund?
• Can a business connected to the franchisor be paid from the fund?
• Are unused amounts carried forward, and how are deficits handled?
• Do franchisor-owned outlets contribute under the same rules?

Also check whether there is a franchisee committee. An advisory committee does not necessarily have decision-making powers. Clarify the distinction between the right to be consulted, the right to vote and the right to receive financial reports.

Finally, look for clauses allowing contributions to be increased or their use to be changed. A contractual cap and a clearly defined notice period provide greater certainty than a sales presentation that merely refers to ‘usual’ fees.

3. Test how well the advertising fits your local market

A campaign designed for the whole brand may be less suited to your customers, the language you serve them in or your catchment area. Ask for examples of campaigns in markets comparable to the one you plan to enter, without treating them as a guarantee of results.

Clarify how much freedom you will have: can you choose a local media outlet, sponsor a community organisation or buy targeted advertising? Who approves creative materials, how long does approval take and what does it cost? If prior approval is compulsory, allow for it in your launch timetable.

For digital campaigns, establish the rules for allocating customer enquiries. Collectively funded advertising may direct visitors to a central website rather than to your outlet. Check how leads, bookings and orders are then distributed.

With your accountant, translate all these obligations into annual costs under several sales scenarios. Separate mandatory contributions from optional expenditure. This will allow you to compare brands on a consistent basis, without confusing an advertising budget with a promise of turnover.

4. Match promises against legal protections

In Canada, franchise-specific regulation is a provincial matter. In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires, among other things and subject to applicable exemptions, a disclosure document to be provided at least 14 days before a franchise-related agreement is signed or a relevant payment is made, whichever happens first. It must include material facts and the relevant agreements.

The Act also imposes a duty of fair dealing, which includes good faith and reasonable commercial standards. It does not, however, guarantee a return on advertising expenditure or a particular level of spending in your neighbourhood.

In Quebec, there is no franchise-specific legislation imposing an equivalent pre-contractual disclosure regime. The Civil Code of Québec, including its rules on good faith and contracts, applies. Ask an independent lawyer to check the requirements in the province where you plan to operate.

Any advertising promise that is central to your decision should be reviewed by that lawyer and recorded in the appropriate contractual documents.

Key takeaway: before committing, obtain a summary covering fees, powers to make changes, permitted expenditure and the financial reports you can access. Do not base your decision on brand recognition alone.