Buying a franchise: check the advertising contribution

A strong brand attracts customers, but shared advertising is not free. When you buy a franchise, you will often pay a compulsory advertising contribution on top of the standard franchise fee. A shared fund like this can deliver real value across a franchise network. Yet the amount alone tells you little: you also need to know what you are paying for, who makes the decisions and how spending is reported. Use these checks to assess the advertising contribution before you commit.

1. Bring all marketing payments together

Do not start by asking whether the advertising percentage is reasonable. First, draw up a list of all compulsory marketing payments. These may be spread across the franchise agreement, operations manual, fee schedule and separate agreements covering digital services.

Ask the franchisor to confirm in writing which costs apply to your outlet:

• A fixed or turnover-based contribution to national campaigns.
• A compulsory minimum budget for local advertising.
• Costs for launch promotions, promotional materials and in-store presentation.
• Fees for the website, customer app, newsletters or advertising management.
• Any separate invoices from designated marketing agencies.

Next, check the basis of calculation. What exactly does ‘turnover’ mean? Is it calculated excluding VAT? How are returns, discounts, gift cards and sales through delivery platforms treated? If you pay a percentage of the sale price before a platform deducts its commission, the contribution may take a relatively large share of what you actually retain.

Ask your accountant to work through a representative month using the definitions in the contract. Include different sales channels. This will help you spot how two apparently identical percentages can result in different costs in practice.

2. Find out what the contribution pays for

Ask for the current marketing budget and the latest spending report. A presentation showcasing attractive campaigns is no substitute for a financial breakdown. You need to be able to trace how contributions received translate into activities and what costs are deducted along the way.

Distinguish between advertising space, campaign development, software, staff costs and general administration costs. Also ask whether the franchisor carries out the work itself or uses a related company. Neither arrangement is necessarily a problem, but the pricing and scope of the work should be clear.

Discuss these questions too:

• Do outlets owned by the franchisor contribute on the same basis?
• Is the money spent on attracting customers, or also on recruiting new franchisees?
• What happens to any surplus at the end of the year?
• Who covers a shortfall, and could it lead to an additional contribution?
• Are contributions recorded separately in the accounts?

Separate accounting does not mean the money is legally ring-fenced. Even a separate bank account in the franchisor’s name does not, in itself, protect the money from its creditors. Do not therefore take reassurance from the label ‘marketing fund’ alone. Ask how the money is actually managed.

Speak to several existing franchisees as well. Do they receive useful reports? Do local promotions complement national campaigns, or do franchisees regularly pay out of their own pocket for activities they thought were already included?

3. Understand the disclosure duties under the Dutch Franchise Act

The Netherlands has specific franchise rules: the Dutch Franchise Act is incorporated into Book 7 of the Dutch Civil Code, in Articles 7:911 to 7:922. For advertising contributions, the duties to provide information before and during the franchise relationship are particularly important.

Article 7:913 of the Dutch Civil Code requires the franchisor, before the agreement is concluded, to provide information about matters including the fees, surcharges and other financial contributions you will be required to pay. A compulsory advertising contribution should therefore not come as a surprise after signing. Also request the schedules setting out how it is calculated and any additional obligations.

Article 7:917 of the Dutch Civil Code applies during the franchise relationship. Each year, the franchisor must inform you of the extent to which the required surcharges or other financial contributions cover the costs or investments for which they are intended. This duty is relevant when you pay towards shared marketing.

This does not automatically mean you are entitled to inspect every invoice, veto every campaign or receive a refund of any surplus. These specific rights need to be established in the agreed terms. Ask a lawyer specialising in franchising to assess whether the proposed reporting arrangements adequately meet the statutory duty.

You also have a duty to carry out your own enquiries. Article 7:915 of the Dutch Civil Code requires you, within reasonable limits, to take steps to avoid entering into an agreement on mistaken assumptions. Keep a record of your questions, the documents you receive and written answers.

4. Put verifiable arrangements in writing

Turn your findings into specific contractual terms. Set out which expenses may be paid from the advertising contribution, when you will receive a spending report and what supporting explanations it must include. Agree how surpluses, shortfalls and any administration costs will be handled.

Ask for a clear procedure for questions or disputed items. Who will provide an explanation, within what timeframe, and can an independent expert review the accounts and reports? Also clarify which local marketing expenses remain compulsory in addition to the shared contribution.

Do not expect every campaign to come with a turnover guarantee. Do, however, assess whether reporting provides insight into reach, enquiries or other appropriate results, without treating general brand awareness as equivalent to additional turnover for your outlet.

Practical conclusion: only sign once you can check the calculation of the advertising contribution, understand what it may be spent on and know how that spending will be accounted for each year. A shared marketing fund deserves clarity for everyone involved.