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Franchisees and Franchisors Should Share in the Cost of Promotions


Since sales promotions are a necessary strategy that franchise systems must employ from time to time, franchisors should construct promotions so that its franchisees look forward to participating.

I've written several articles about the benefits available to franchisors for providing an incentive to its franchisees for participating in sales promotions. If active franchisee participation can be obtained without an incentive, than at the very least, a sales contest with rewards for the top franchisees could generate enthusiasm among the franchisees. However, it’s been my experience, that when it comes to sales promotions, gaining total franchisee participation can be a challenge. Although a provision in the franchise agreement mandating franchisee participation in promotions could be a solution, a sales promotion with poor results could create potential issues between the parties.

There are several reasons why franchisees resist sales promotions:

  • If the franchisee royalty percent remains the same, it means any reduction in total franchisee gross margin percent must be offset by a sales increase sufficient to overcome this deficit. In other words, the promotion doesn’t cost the franchisee GM dollars.
  • Some franchisees just don’t want to participate.
  • Sales promotions, like advertising campaigns generate lots of creative opinions. The result is that achieving a consensus can be difficult. Therefore certain franchisees have to be “sold” or they resist participating.
  • Despite the previous comment, a failure to involve some franchisees in the design of a sales promotion, however, limited their role might be, can make it hard to achieve a total “buy-in.”

Sales promotions are a necessary tactic that businesses employ in order to maintain or increase market share. Having all franchisees actively and enthusiastically participate in sales promotions should be an objective of the franchisor. To achieve this objective franchisors should consider royalty rebates and other methods for sharing the cost of the promotion. This could include the use of advertising fund monies to finance the promotion costs, subject to the approval of the ad fund committee. Another way to gain involvement is by running a promotion with a select group of franchisees in a controlled market so results can be measured.

Having franchisees willingly participating in sales promotions will pay dividends for both parties.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com

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