Managing a Marketing Fund Before Granting Franchises in Saudi Arabia

When your existing business becomes a franchise network, advertising campaigns are no longer simply an internal matter for your own outlets. Franchisees who contribute to marketing need to know where their money goes, who approves expenditure and how results are interpreted. Before collecting shared marketing contributions, put a clear policy in place to manage them. The aim here is not to set the fees, but to establish governance that keeps expenditure properly separated and makes marketing commitments clear and open to review.

1. Define the fund’s purpose and spending limits

Start with a written definition: will contributions be used to build brand awareness across Saudi Arabia, generate orders for outlets, or both? Call the arrangement a shared marketing fund or programme, explaining its contractual and accounting status without suggesting that it is a separate legal entity if it is not.

Divide expenditure into permitted categories, such as buying advertising space, producing photography, managing digital campaigns and conducting customer research. Also specify what cannot be charged to the contributions, such as the costs of selling franchise opportunities or personal expenses that do not serve the agreed purpose. These are suggested governance boundaries, not a statutory list imposed on every brand.

Resolve the issues that are easy to overlook, too. Does expenditure include the costs of the in-house marketing team? Can services be bought from a company owned by the franchisor or a related party? If so, explain the pricing, approval and reporting arrangements rather than hiding them under a general heading of ‘administrative expenses’.

Do not promise each outlet expenditure equal to its contribution: a national campaign may benefit the whole brand without spending being distributed equally across geographical areas. Explain this principle in advance, however, and distinguish between collective brand benefits and a commitment to deliver a specific local campaign.

2. Align the policy with the agreement and Saudi disclosure requirements

Franchise relationships in Saudi Arabia are governed by the Commercial Franchise Law, issued under Royal Decree No. M/22 dated 9 Safar 1441 AH, and its Implementing Regulations. The franchise agreement must include the amounts the franchisee is required to pay the franchisor. Do not, therefore, leave a mandatory marketing contribution in a presentation or separate message outside the contractual documents.

The agreement should explain the contribution’s purpose, when it becomes due and how it must be paid, the limits of spending authority, and how it relates to local marketing funded by the franchisee. Check that these provisions are consistent with the disclosure document and its annexes, particularly the financial obligations. If the agreement refers to a marketing policy, identify the applicable version and how it may be amended. Do not assume that referring to the policy gives you an unrestricted right to impose new burdens.

Under Article 7 of the Law, the disclosure document must be provided at least 14 days before the agreement is signed or any payment relating to the franchise is made, whichever comes first. Accordingly, do not request a contribution towards an opening campaign without observing this timetable simply because you call it an ‘advertising reservation’.

Use a legal specialist to draft provisions suited to your business model. The reports, committees and approval procedures suggested here are practical governance tools; do not present them to prospective franchisees as general statutory requirements unless there is a specific legal basis for doing so.

3. Establish a traceable approval and accounting process

Before receiving the first contribution, appoint someone to manage the budget and someone else to approve expenditure and check the supporting documents. Roles may overlap in smaller businesses, but avoid allowing one person to select a supplier, approve its invoice and confirm delivery of the service without a second review.

Create a separate accounting ledger or cost centre to track contributions, expenditure and balances. This is not a substitute for agreeing the correct accounting and tax treatment with your accountant. Each payment should be traceable to a contract or purchase order, an invoice and evidence of delivery.

Prepare a periodic spending plan covering:

• Each campaign’s objective, target audience and the outlets that will benefit directly.
• The approved budget and who has authority to approve any overspend.
• How suppliers will be selected and any relationship they have with the franchisor disclosed.
• Performance measures and the date for reviewing results.

Decide in advance how to handle unspent balances, shortfalls and cancelled campaigns. Will the balance be carried forward to the next period? Who will bear commitments that contributions do not cover? Settle these questions in the contractual arrangements, not after a dispute arises.

4. Test transparency before widening participation

Use marketing data from your existing business to prepare a sample report before collecting franchisees’ money. Show the opening balance, contributions received, expenditure by category, outstanding commitments and the remaining balance. Include a brief explanation of any departures from the plan, rather than just a table of figures.

Distinguish between measuring activity and measuring impact. Views are not sales, and an increase in orders during a campaign does not, by itself, prove that the campaign caused it. Explain the limitations of the data and avoid turning the marketing report into a promise of guaranteed returns.

Provide a channel for franchisee enquiries and set a response timeframe. As the network grows, you could also establish an advisory committee. Specify whether its role is to offer views or approve particular decisions, so expectations remain aligned. Include a procedure for correcting expenses charged in error, with the correction shown in the next report.

Practical takeaway: Do not start collecting contributions and only then look for a way to manage them. Prepare a spending policy, approval powers, an accounting ledger and a sample report, then align them with the agreement and disclosure document before entering into a commitment with your first franchisee.