Franchisees and Franchisors Should Share in the Cost of Promotions
by Ed Teixeira
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