CMOs frequently ask how to effectively allocate their franchise’s national ad fund marketing budget. To do that, you must decide how much of your budget should go toward brand building and how much should be allocated toward performance marketing and/or local store marketing.
The question has long puzzled marketers and franchise systems, and there is no one-size-fits-all answer. However, one generally accepted rule of thumb is to allocate 60% of your budget toward brand building and 40% toward performance marketing.
Brand building is a long-term investment in your franchise’s future, while performance marketing focuses on generating immediate sales.
Brand building involves creating and maintaining a strong brand identity, reputation and loyalty among your customers. Brand building can be accomplished through advertising, public relations, social media marketing and content marketing. These platforms focus on creating awareness and recognition of your brand and building an emotional connection with your customers.
Performance marketing is a more direct response-oriented approach that focuses on generating immediate sales or leads. This includes search engine marketing, pay-per-click advertising and email marketing. These activities aim to drive short-term results, such as increasing website traffic, generating leads and increasing conversions.
We tell our clients to be careful putting too much of the national ad fund in performance marketing, especially if the ad fund percentage franchisees pay is low. Although you want immediate results, as do your franchisees, the national ad fund is really meant to do the heavy lifting on building the brand, which will, in turn, help the franchisees.
Franchisors often make the mistake of not asking for a large enough ad fund percentage up front, and they pay for that mistake later as the brand is scaling. If your franchise is an emerging brand, make sure the marketing percentage is significant enough to help build the brand and help stores locally. It’s hard to go back and ask for a higher percentage later — especially with your top franchisees, who think they are contributing a larger amount already because their revenue is higher.
Sometimes a franchisor will say they need a “shot in the arm” when they need immediate sales. While performance marketing can certainly help you get leads, conversions, memberships and sales in the short term, using the entire budget for performance marketing over the long term is not wise.
We’ve seen franchisors offer to pay for local store marketing to try to convince the franchisees to market around their locations. While this is generous, we do not think it’s best practice long term. A rule of thumb is that the franchisor should do the heavy lifting on building the brand and making sure the marketing technology is up to date. If the ad fund is too low, either mandate that the franchisees pay a percentage for local marketing or strongly recommend it.
The downside of franchisees choosing vendors for local marketing is that many do not really understand marketing and it takes their focus away from running their locations. The franchisor must police franchisees to ensure they are spending locally. The upside is there are franchisees who believe in and see the value in local store marketing, and they are willing to pay incremental money each month to get more leads/sales.
Allocating your marketing budget effectively is crucial for the success of your franchise system. While there is no one-size-fits-all approach, a 60% brand building and 40% performance marketing split is a good rule of thumb. Variables that may affect that allocation include the franchise system’s overall needs, the total amount of ad dollars coming in, the percentage of ad fund contribution, how well-known the franchise brand is and other factors.
The best advice is to do your homework so you can set up your franchise brand for success. As your franchise system scales, having the right allocation will save you headaches down the road.
