Buying a franchise: how to negotiate marketing fees

A marketing fee may seem like a minor item alongside your initial investment, but it remains a business expense long after opening. Joining a franchise network means helping to build a shared brand, but that does not mean you should accept unclear charges. Before buying a franchise in Croatia, check how the fee is calculated, who decides how the money is spent and what rights you have if reports are not provided.

1. Separate the brand fee from advertising costs

First, establish what the ongoing franchise fee already covers and what is charged separately. The right to use the brand is not the same as funding advertising. The agreement may require contributions to a shared marketing fund, mandatory local advertising and a separate budget for your opening campaign.

Ask for a consolidated breakdown of all marketing obligations. For each item, identify who receives the money, the payment deadline, the basis of calculation and the service or activity it funds. Include any mandatory costs for photography, promotional materials, digital tools or agency services specified in the agreement.

In particular, clarify the following:

• Is a percentage-based fee calculated on turnover including or excluding VAT?
• Are returns, cancelled orders and discounts deducted?
• How are gift vouchers, online sales and orders through delivery platforms treated?
• Is there a minimum fee even when there are no sales?
• Is the fee payable while the outlet is temporarily closed?

The basis of calculation must be defined in the agreement, not left open to later interpretation. Ask an accountant to check whether the agreed calculation can be reliably made using your records. This helps avoid both disputes and unnecessary administrative work.

2. Agree how the fund may be used and your rights to inspect records

The name ‘marketing fund’ does not in itself mean that the money is held in a separate account or that franchisees jointly decide how it is used. Check whether the fund is simply an internal accounting record kept by the franchisor or whether there are clearly defined arrangements for collecting and spending the money.

The agreement should specify permitted expenses. These might include buying advertising space, producing campaigns, maintaining a shared website or conducting customer research. If the fund pays for the franchisor’s staff, administrative costs or associated agencies, ask for this to be stated explicitly, together with the method of calculation and appropriate limits.

Distinguish advertising aimed at customers from promotion used by the franchisor to recruit new franchisees. The latter may help the network grow, but it is not the same as attracting customers to your outlet. Do not accept an assumption that these purposes are equivalent.

Negotiate the right to:

• regular reports on the total funds collected and expenditure by category;
• explanations of significant departures from the planned budget;
• information on unspent funds and how they are carried forward;
• checks on whether expenditure is justified, while protecting confidential information.

You do not necessarily need to request every individual invoice. A proportionate solution could be an annual review by an independent accountant, with a summary available to all contributors. It is important to agree in advance who pays for the review and what happens if an irregularity is found.

3. Check what shared campaigns mean for Croatia

An international campaign may raise brand awareness without necessarily being suited to the Croatian language, customer habits or local seasonal patterns. Before signing, clarify whether your contribution funds global activities, activities in Croatia or both.

Do not expect every euro you contribute to be spent on advertising your own outlet. Shared funding can make sense without equal distribution. However, the allocation criteria should be clear: the number of outlets, the needs of a particular market, expansion plans or other criteria set out in advance.

If you must also invest in local advertising, agree what qualifies as eligible expenditure. Clarify whether this includes sponsorships, partnerships with local content creators, printing promotional materials and your own digital campaigns. Set a deadline for the franchisor to approve materials and a procedure to follow if no response arrives; do not assume that silence means approval.

Also agree who manages local advertising accounts and what access you have to reports. Otherwise, you could be paying for a campaign without being able to check where it appeared or what response it generated.

4. Protect yourself through the agreement, not assumptions about the law

Croatia has no specific franchise law or mandatory standardised pre-contractual disclosure document for franchises. The contractual relationship is governed in particular by the Civil Obligations Act, including the principle of good faith and fair dealing. Depending on the issue, the Competition Act, EU competition rules and the Trade Mark Act may also be relevant.

Do not therefore assume that the law automatically gives you a specific right to audit the marketing fund. It is best to expressly agree that right, the scope of reporting and the relevant deadlines in the contract. The Croatian Chamber of Economy (HGK) Franchise Register is an information resource, not a mandatory state registration system or confirmation that a particular fund is transparent.

Ask a lawyer to check whether the franchisor can unilaterally increase the fee or broaden its permitted uses by amending the operations manual. Seek clear conditions for changes, advance notice and an agreed limit on increases. Set out a procedure for raising objections and the consequences of spending funds for unauthorised purposes. Do not stop payments on your own initiative without legal advice, as this could put you in breach of the agreement.

Practical takeaway: before signing, you should be able to explain how much you pay, what the money is used for and how you can verify this. If any answer depends solely on a verbal promise, ask for a clear contractual provision.