Franchising: check the advertising fund before you sign

Joining a franchise network also means sharing in the brand’s visibility. But paying an advertising contribution does not, on its own, guarantee effective campaigns for your outlet. Before buying a franchise, you need to understand who funds marketing communications, how the money collected is used and what commitments the franchisor makes. This means checking a specific cost against what you receive in return: seeing ‘marketing included’ in a quotation is not enough.

1. Separate the advertising contribution from other costs

The first step is to request a breakdown that separates the contribution towards shared campaigns from royalties, launch costs and local promotional spending. All these charges may apply, even if the sales presentation refers broadly to advertising support.

For each item, note:

• who receives the payment and who manages the campaigns;
• whether the amount is fixed or calculated as a percentage of a defined figure;
• when it is invoiced and how VAT is applied;
• whether the contract provides for minimum payments, balancing adjustments or increases;
• which activities are included and which require additional payments.

If the contribution is based on sales, clarify how returns, discounts, cancelled orders and sales through third-party platforms are treated. If it is fixed, check whether it is still payable during a temporary closure or before the outlet actually opens.

The key question is: how much must I spend on advertising in total? A shared contribution may come on top of a compulsory minimum local spend, the production of materials and fees for an agency specified by the franchisor. Asking for a sample invoice and an annual payment schedule can help identify these overlapping costs.

2. Understand what the law requires and what needs to be negotiated

In Italy, franchising is governed by Law No. 129 of 6 May 2004. The agreement must be in writing to be legally valid. Among other things, Article 3 requires it to specify the investment required and any entry fees, along with details of the services provided by the franchisor in areas such as technical and commercial support, design, fit-out and training.

Article 4 requires prospective franchisees to receive a complete copy of the agreement they will sign, together with the annexes required by law, at least 30 days before signing. At this stage, it is therefore important to review any advertising rules referred to in the agreement, rather than accepting verbal explanations of the financial terms for marketing communications.

Law No. 129/2004 does not prescribe a mandatory advertising fund model, nor does it automatically give franchisees the right to approve campaigns or receive detailed periodic financial reports. These provisions need to be checked in the agreement and, where necessary, negotiated within the framework of the general duties of fair dealing and good faith.

Nor does calling a charge a ‘fund’ prove that the money is held separately or ring-fenced for particular expenses. Ask how it is accounted for and what uses the agreement permits. Have a lawyer check that the payment obligations are consistent with the franchisor’s promotional commitments.

3. Check how the money is used and reported

A national campaign may raise brand awareness without immediately generating enquiries for every franchisee. That does not make it pointless, but it does call for clear objectives, distinct from promises of local sales.

Ask for an indicative activity plan and, where available, examples of reports from previous periods. These can help you assess how the franchise network operates in practice; they are not guarantees of future results.

The main points to check are:

• Permitted expenditure: advertising space, creative production, agencies, in-house staff, events and digital tools.
• Allocation criteria: national campaigns, regional initiatives and promotion of outlets operated directly by the franchisor.
• Unspent money: whether it is carried forward to subsequent years or put to another specified use.
• Available information: how often reports are provided, the level of spending detail and whether you can request clarification.

Also check whether campaigns fund the recruitment of new franchisees rather than customer acquisition. These are different purposes: any use of contributions for both should be made explicit.

A useful financial report distinguishes between the money collected, the money spent and the activities funded. Views and engagement figures can supplement this information, but they do not replace a financial breakdown.

4. Define responsibilities and flexibility in local promotion

Before signing, map out the process for a local campaign: who proposes it, who approves the materials, who pays and who receives the leads generated. Check approval timescales and whether you can use your own suppliers.

Also clarify who manages the advertising accounts and which performance data the franchisee will be able to access. If customers’ personal data is collected, roles and responsibilities must be properly defined under data protection law, rather than assuming that everything falls to the franchisor.

Finally, ask for a named contact and a procedure for disputing charges or raising concerns about promised activities that have not been delivered. Do not confuse disappointing commercial results with failure to provide a service required by the agreement.

In practice: before signing, draw up a checklist with three columns: what I pay, what activities are promised, and how I check they have been delivered. Every blank space is a question to resolve in writing.