Buying a franchise: checking the advertising levy

The advertising levy may seem small compared with the initial investment, but it is a recurring commitment that affects your outlet’s performance. In franchising, shared marketing delivers value when franchisees know what they are paying for, where the money goes and who assesses the results. Before choosing a brand in Greece, examine the levy as a separate contractual obligation, not a vague promise of more customers.

1. Clarify exactly what you are paying

Ask for a full explanation of the charge: is it a fixed amount, a percentage of sales or a combination of the two? Is there a minimum monthly contribution regardless of takings? Can additional charges be imposed for new campaigns or a brand refresh?

If the levy is calculated on turnover, the agreement must define the basis of calculation. Check how VAT, returns, cancellations, discounts and sales through platforms are treated. Do not assume that third-party commissions are deducted simply because that money does not stay in your till.

Also distinguish between three separate obligations:

• The contribution towards the network’s shared advertising.
• Your outlet’s compulsory local advertising spend.
• Any additional charges for creative materials, photography or digital account management.

Ask for a sample monthly statement and give it to your accountant. The aim is to be able to reproduce the calculation without verbal clarification. Also check who can increase the charge, what procedure they must follow and how much notice they must give you.

2. Check management and accountability

The term ‘advertising fund’ does not, in itself, prove that there is a separate bank account or an independent audit. Ask who collects the money, how it is recorded in the accounts and which expenses it may cover.

Request the most recent available financial report and an indicative budget. If the network is new and has no track record, ask for a written fund management policy and a template for future reporting. Useful spending categories include advertising space, content production, service provider fees and administration costs.

The key questions are specific:

• Do company-owned outlets also contribute, and on what basis?
• Can contributions fund the recruitment of new franchisees rather than customer acquisition?
• Are related companies paid to provide advertising services?
• What happens to unspent funds or budget overruns?
• When does each franchisee receive a report on spending and results?

Not every outlet needs to receive advertising worth exactly the amount it contributes. Nationwide brand awareness can benefit the network as a whole. However, there should be a clear explanation of how spending is allocated, particularly when a large share goes to areas where your outlet does not serve customers.

3. Make transparency a contractual right

Greece has no dedicated law providing a comprehensive framework for franchising, nor a specific statutory system of mandatory pre-contractual disclosure for franchises. The general rules of the Greek Civil Code apply, including freedom of contract under Article 361, pre-contractual good faith and liability under Articles 197–198, and performance in good faith under Article 288. Depending on the issue, commercial and competition law rules also apply.

The European Code of Ethics for Franchising provides for full and accurate written disclosure of material information within a reasonable period before any commitment is made. It is a self-regulatory framework, not a generally applicable Greek law. Check whether, and how, it binds the particular franchisor.

Do not assume that paying a levy automatically gives you unlimited access to the franchisor’s books or the right to approve every campaign. Ask for the following to be set out in the agreement or a binding schedule:

• The frequency and minimum content of financial reports.
• The procedure for submitting questions and the deadline for replies.
• The right to verify expenditure, subject to reasonable confidentiality conditions.
• The permitted uses of the money and the procedure for changing them.

A solicitor or lawyer experienced in franchising should check whether these commitments are consistent with the rest of the agreement. A general clause allowing unilateral changes to policies may substantially restrict rights that appear to be secured elsewhere.

4. Assess the benefit to your outlet

Ask for examples of campaigns and how their performance is measured. Advertising impressions are not the same as visits or sales. Check whether reports distinguish between brand awareness, customer enquiries, orders and actual commercial performance, without presenting correlation as proven causation.

Speak to existing franchisees about how often they receive updates, the support available for local marketing and how complaints are handled. Also ask who approves your own advertisements and how long approval takes, so that the process does not cause you to miss seasonal opportunities.

Practical takeaway: before committing, obtain four things: a clear charging formula, a list of permitted expenses, a sample financial report and written rights to information. Judge the advertising levy by what it funds and the accountability that comes with it, not just by its size.