How Much Of My Franchise Budget Should Go To Marketing?

Read More: Should I Use Branded Keywords In My Search Advertising?

The Franchisee’s Role In Marketing

Franchisors are, ideally, doing a ton of marketing for their brand, awareness, etc. — the so-called “30,000-foot view.” But while the franchisors are handling that sort of large-scale marketing, that’s only going to do so much to market an individual franchisee’s location. Clearly, local, ground-level marketing is the franchisee’s responsibility. 

To put it another way – it’s a franchisor’s job to make sure that customers want to shop at your brand. It’s up to the franchisee to make sure that customers want to shop at your location.

For things devoted to a specific franchisee’s territory, like social media marketing, ad circulars, billboards, community outreach, and paid search, the money will have to come from a franchisee’s budget. 

This can be good, though: ideally, a franchisee should know their region and customers better than a more-distant figure at the franchisor level, and have an idea of how to reach them. Assuming they adhere to any marketing guidelines the franchisor may have set out for them, this could be the best possible division of responsibility.

Setting Your Goals

Like Babe Ruth pointing his bat to the outfield, if you want to succeed at marketing your franchise, you’re going to need to know what your goal is. Different goals require different approaches, and different approaches will have different associated costs.

Pushing for customer loyalty and retention, for example, may require follow-up email marketing, an online retargeting campaign, or free gifts for certain customers. Pushing for greater awareness could mean more social media marketing, mailers to local addresses, or outreach in the community. Pushing for more sales could mean paid search, banner advertising, or CTV promotions. Having a specific goal in mind — preferably a reasonable, achievable one — will help you determine your approach.

Estimating Your Budgets

Equally critical is assessing your revenue. This becomes more manageable if the franchise has a history of operation, allowing the use of previous year-over-year data as a benchmark. But if it’s a new location, doing market research into similar locations elsewhere will be helpful. All of this helps you determine how much your location can afford to spend on marketing efforts.

For many franchisees, this can be a sticking point — that “extra” money is the franchise’s profits, and they’re understandably reluctant to part with them. But it’s important to remember that if everything goes according to plan, these marketing efforts will produce a return on investment in excess of what you put into it.

Other Factors

Naturally, there are a lot of other factors that play into what a franchise owner may be expected to spend on their marketing:

• Business-to-business (B2B) operations tend to spend a lower percentage of their budgets on marketing than Business-to-Consumer (B2C) operations.
• Most franchises are expected to put forth a regular fee to contribute towards the brand’s national marketing campaigns, alongside their other licensing fees.
• Some franchises have minimum — or maximum — thresholds for what they are allowed to spend on marketing as a percentage of their sales. Little Caesars, for example, says that franchisees can spend up to 7% on marketing, at their discretion.
• The US Small Business Administration says most small businesses should spend around 5% of their sales on marketing – but that’s not a rule with franchises in mind.

So What Should A Franchisee Spend On Marketing?

The best rule of thumb is this: a franchisee should keep expanding their marketing budget until their marketing efforts start yielding diminishing returns. At that point, they can either revisit their approach to see if there are any new directions they can take to continue their aggressive expansion, or if they’ve perhaps topped out on what this region can deliver (absent opening additional locations or the like).

B2B operations may spend between 2-5% on marketing, whereas B2C operations may lean more between 5-10%. In times of expansion, or larger foundational projects (like a website update, big campaign push, adding new advertising channels, etc.) that number may go higher. 

Experimentation may reveal a couple of different thresholds to marketing:

• The level where a franchisee isn’t spending enough on marketing, and revenues begin declining.
• The level where the franchisee’s sales are holding steady; reducing spend correlates to a reduction in sales.
• The level where the franchisee’s sales expand the more is spent on marketing.

These aren’t hard and fast rules – some businesses may need to spend more or less depending on too many factors to list here. But there’s one definite rule: franchisees need to be contributing hard to their local marketing efforts if they want to succeed.

Final Thoughts

In conclusion, when done properly, marketing isn’t an expense: it’s an investment in the future growth of your business. 

If you’re part of a franchise operation looking to handle your local marketing the right way, Balihoo might be just what you’re looking for. With expertise in paid search, paid social, CTV advertising, and more, we’re the tailored solution for multi-location marketing. You can get started today by reaching out to our team.