Buying a Franchise: Check Marketing Levies and Reporting

Marketing levies often look modest in a franchise offer, but they can become a recurring obligation that is difficult to control. Prospective franchisees need to understand not only how much they will pay, but also who manages the money and how its use is accounted for. Joint marketing can strengthen a franchise brand, but the benefits do not automatically reach every outlet equally. Here is how to assess the arrangements before signing an agreement.

1. Separate each type of marketing obligation

Do not assume that the marketing levy covers all marketing expenditure. Ask for a written breakdown distinguishing contributions to joint campaigns, local marketing budgets, outlet opening costs and charges for participating in specific programmes.

Also check whether royalties cover marketing services or whether these are charged separately. Terms such as “marketing support” do not explain whether the franchisor simply supplies materials, buys advertising space or funds the entire activity.

Use the following questions when seeking clarification:

• Is the levy a fixed amount or a percentage of sales?
• If it is based on sales, are taxes, cancellations and refunds excluded?
• How are sales through apps calculated: before or after platform deductions?
• Are there minimum contributions, periodic increases or additional charges?
• Do franchisor-owned outlets contribute on the same basis?

Ask for a worked example showing the calculation from transaction to invoice. The aim is to ensure that the contract terms produce figures you can verify, rather than simply sounding clear during a presentation.

2. Find out who manages and receives the funds

Ask whether levies are recorded as a distinct marketing fund or form part of the franchisor’s revenue. These arrangements have different implications for tracing how the money is spent. Do not assume there is a separate bank account without evidence.

Ask for an explanation of permitted expenditure. Advertising purchases, product photography, agency services, marketing team salaries and travel to events should not be bundled under a broad heading without clear limits. If administration fees are deducted from the fund, the basis for those deductions should be clear.

Also check whether affiliated suppliers are used. An affiliation does not automatically indicate a problem, but prospective franchisees need to understand who approves prices and how the reasonableness of costs is assessed.

For an established network, ask for a sample fund expenditure report from a previous period. If detailed documents are confidential, suggest a redacted summary. Compare the budget, actual expenditure and remaining balance. Ask whether any surplus is carried forward and how budget shortfalls are handled.

3. Distinguish legal obligations from negotiated rights

Indonesia regulates franchising specifically through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It covers matters including the franchise offering prospectus, franchise agreement and Franchise Registration Certificate, known locally as the STPW.

Franchisors must provide the offering prospectus to prospective franchisees at least 14 calendar days before the agreement is signed. Use this period to check that explanations of marketing charges match the draft contract and all its annexes.

However, these disclosure obligations should not be taken as a guarantee that every franchisee automatically has the right to approve campaigns, receive a dedicated audit of the marketing fund or gain a particular number of customers. Rights to reports and oversight of the fund need to be expressly set out in the agreement.

Ask a legal adviser to review the levy clauses, policy changes and procedures for raising objections. Make sure the proposal, fee schedules and marketing guidelines do not contradict one another. If the franchisor can update the guidelines unilaterally, ask whether those changes can also create additional payment obligations.

4. Test the impact of campaigns on outlet margins

A campaign that increases transactions does not necessarily increase an outlet’s profit. Discounts, delivery subsidies, platform fees and additional staffing requirements can all reduce the final return.

Ask for an example of a previous campaign, then work through the figures using the circumstances of your proposed location. Record revenue after discounts, product costs, transaction fees and additional implementation costs. Keep the regular marketing levy separate from campaign-specific costs so that nothing is overlooked.

Ask who bears the cost of discounts and how subsidies are reimbursed. Does the franchisee have to pay upfront? What evidence is required to claim reimbursement? What happens if payment is delayed?

Speak to franchisees operating in similar locations. Ask about their experience of billing accuracy, subsidy payments and the usefulness of campaigns. Treat their experience as evidence to investigate, not a guarantee of results for your outlet.

5. Agree accountability arrangements before committing

Propose clauses specifying reporting frequency, expenditure categories, who is responsible and deadlines for responding to franchisees’ questions. Distinguish activity reports, such as the number of marketing materials produced, from financial reports showing how funds have been used.

Also ask for a procedure for correcting invoices and a dispute resolution process. If an independent review is agreed, specify what triggers it, its scope, confidentiality requirements and how its costs will be shared. Verbal promises that reports “can be requested at any time” should be put in writing.

Practical step: before buying, prepare a one-page summary covering the basis of the levy, additional charges, permitted uses and reporting rights. Hold off on agreeing if your payment obligations are clear but accountability for the funds remains vague.