Franchise advertising funds: what to agree on in Mexico

A well-known brand is no guarantee that its advertising will bring customers to your future outlet. Before buying a franchise in Mexico, you need to understand what you will be funding, who will decide on campaigns and how you will find out about their results. Across a franchise network, a clearly defined advertising fund allows businesses to pool their efforts; an unclear one can become a recurring expense with no firm commitments.

1. Separate the shared fund from advertising for your outlet

Advertising contributions are often confused with royalties, although they may serve a different purpose. While royalties pay for the agreed rights and services, the advertising fund must be used for the purposes set out in the contract. Do not assume it covers all the promotion you will need to run your business.

Ask for a breakdown of the obligations that may apply alongside one another:

• Shared fund: campaigns that benefit the brand or several outlets.
• Local advertising: spending you must undertake directly for your outlet.
• Opening campaign: activities and materials for the launch.
• Additional services: social media management, photography, digital advertising or production of materials.

For each item, ask who collects the payment, who commissions the work and who receives the invoice. Also confirm whether the contribution is calculated on sales, whether a minimum amount applies and how cancellations, refunds and taxes are treated.

Ask for an illustrative monthly calculation with clearly stated assumptions. Its purpose is not to demonstrate profitability, but to uncover overlapping charges: for example, paying into the fund for digital content while also having to pay for a mandatory service to adapt that same content.

2. Understand the obligation under Mexican regulations

Mexico has specific regulations governing franchises. Article 246 of the Federal Law on the Protection of Industrial Property (Ley Federal de Protección a la Propiedad Industrial, or LFPPI) requires franchise agreements to be in writing and to include, among other things, marketing and advertising policies. This issue should therefore not be left solely to a sales presentation.

Article 245 requires the franchisor to provide information about the state of its business at least thirty days before the agreement is signed. Article 65 of the Regulations under the Industrial Property Law includes, among the required pre-contractual disclosures, the amounts and types of payments the franchisee will have to make.

Compare this information, usually presented in a franchise disclosure document known as the Circular de Oferta de Franquicia, with the agreement and its annexes. If a new advertising fee appears or its calculation changes, ask for a written explanation and have it legally reviewed before signing.

The legal obligation to include advertising policies is not a sales guarantee, nor does it automatically give you a veto over campaigns. Consultation with franchisees, regular reporting and other ways of participating must be defined in the relevant documents. Do not assume the money will be held in a separate account either: ask how it is managed and how it is accounted for separately.

3. Define permitted uses, decision-making and reporting

Ask for the fund's rules before making a commitment. They should allow you to distinguish spending intended to attract customers from spending intended to sell new franchises. If your contributions can fund both, you need to know this and decide whether you accept that allocation.

Pay particular attention to these points:

• Uses: advertising channels, creative production, agencies, digital tools and any administrative expenses.
• Responsibilities: who approves the budget and selects service providers.
• Related parties: whether companies connected to the franchisor may be hired and how that relationship will be disclosed.
• Reports: frequency, spending categories, campaigns delivered and the available balance.
• Unspent funds: what happens to unused money and whether it can be carried forward to subsequent financial years.
• Changes: the conditions under which the contribution or its permitted uses may change.

Each outlet does not necessarily need to receive exactly what it contributes: a shared campaign may benefit some locations more than others. What matters is understanding the allocation criteria and not confusing a contribution to a shared fund with spending reserved for your outlet.

Ask for anonymised examples of previous reports. A promise of transparency becomes more meaningful when you can see what information you will actually receive.

4. Check how promotional support will reach your outlet at launch

Before buying, request a sample advertising schedule and speak to franchisees in comparable locations. Ask whether they receive materials on time, how long local approvals take and what support they received when they opened.

Clarify who controls your outlet's digital profiles, who responds to enquiries and how leads generated by campaigns are directed to outlets. For discount promotions, establish who bears the cost and whether participation is compulsory. A campaign may increase orders without making up for the discount you fund.

Negotiate verifiable deliverables: materials, dates, channels, responsible parties and performance measures. Distinguish between reach, enquiries and sales; they are not equivalent results. If information is missing or an agreed service is not delivered, the contract should set out a procedure for raising complaints and putting things right. Do not unilaterally stop payments without legal advice.

Practical takeaway: before signing, bring together on one page how much you will contribute, which uses you authorise, what support your outlet will receive and which reports you will be entitled to request. If any answer depends on a verbal promise, it still needs to be documented.