Franchising in the Philippines: Review the Marketing Fund

As well as the initial franchise fee, you may be charged a regular contribution towards marketing the brand. This does not automatically mean advertising for your own outlet. Within a franchise network, it is important to be clear about who manages this fund, what it can be spent on and what information you will receive. Before buying, assess the contribution as a separate financial obligation—not as a vague promise of more customers.

1. Establish the full charge and how it is calculated

Ask for the current contract, a schedule of all fees and the marketing policy. Check that they align: the contribution quoted in the sales presentation may be small, but there may also be separate mandatory spending on local promotions.

Get written answers to the following:

• Is the contribution a fixed amount or a percentage of sales?
• If it is based on sales, how are tax, refunds, discounts and sales through third-party delivery platforms treated?
• When do charges begin: on signing, on opening or on the first sale?
• Is there a minimum contribution even when sales are low or the outlet is temporarily closed?
• Are there separate charges for a launch campaign, seasonal promotions or the production of marketing materials?

Ask for a worked example using one month of hypothetical sales. The aim is to check that you both understand the formula in the same way, not to demonstrate potential profits.

Include all mandatory contributions in your monthly budget. If you must also spend on marketing in your own area, find out whether this can be offset against the central contribution or is genuinely an additional cost.

2. Find out where the money goes

A pooled fund may make sense for building brand awareness, producing photographs and videos, or running large-scale campaigns. However, the limits on permitted spending should be clear.

Ask whether the fund can be used for staff salaries, agency fees, travel, equipment and other administrative costs. Also find out whether it can be used to recruit new franchisees rather than attract customers to buy products. These are different objectives.

Ask for the latest summary of money collected and spent if a fund already exists. For a new brand, request an initial budget and details of how reporting will work. There is no need to disclose other owners’ personal information to show how the money is used overall.

Also check whether separate records are kept for the fund, how unspent money is carried forward to the following year and whether outlets owned directly by the franchisor contribute. If service providers are relatives or related companies, ask how pricing and potential conflicts of interest are assessed.

Spending does not have to be equal across every area. Nevertheless, the basis for allocating funds should be clear, and there should be no promise that every peso contributed will come back as local advertising.

3. Put reporting and changes in writing

A statement such as “we provide regular reports” is not enough without a timetable and details of what the reports contain. Have the contract or a signed addendum specify when you will receive reports, what information they will include and whom to contact with questions or objections.

You can request an annual fund summary, a comparison of budgeted and actual spending, and explanations of significant differences. If an independent review is important to your decision, clarify whether one is available, who will pay for it and which findings you will be able to see.

Check the powers to increase contributions. Is there a cap, a notice period or a requirement for consent? Can the manual change your financial obligations without a newly signed agreement? Have a lawyer review the relationship between the contract and the manual before you agree.

Also clarify who bears the cost of discounts required by national promotions. The advertising contribution and the reduction in a product’s selling price are two separate financial burdens. Do not assume that one covers the other.

4. Consider the Philippine regulatory framework

The Philippines has a specific order relating to franchising: Executive Order No. 169, series of 2022. It focuses on protecting micro, small and medium-sized enterprises that become franchisees. The minimum requirements for agreements within its scope include full disclosure of fees, details of rights and obligations, and a dispute resolution mechanism.

The order also directs the Department of Trade and Industry (DTI) to establish a registry of franchise agreements. Before signing, confirm with the department the current procedures and requirements applicable to your transaction. Registration is neither a guarantee of profit nor proof that the fund is well managed.

The Civil Code also applies to obligations, contracts and performance in good faith. However, do not assume that the order automatically grants every right you might want, such as voting on each campaign or inspecting every receipt. Put the agreed safeguards and routes for seeking redress in writing.

Practical reminder: Before buying, make sure you can explain the contribution formula, permitted spending, reporting timetable and rules for increases. If any of these are unclear, seek written clarification first.