When I sold my HVAC company last year, the buyer initially balked at the 2% corporate ad fund fee that was part of the franchise agreement. I had to walk them through the actual numbers. The fund covered regional advertising and lead generation, and our location had seen a 15% increase in inbound calls over two years. We spent about $40k annually on the fee but gained an estimated $120k in additional revenue. It wasn't just a cost, it was a revenue driver. Anyone else had to justify this to a skeptical buyer?
Selling
My experience showing a buyer why the 2% corporate ad fund is actually worth it
Interesting. I’ve never had to sell a franchise, but I can see how a buyer would see 2% as just another fee. Did you show them the actual ad spend breakdown or just the revenue lift? Buyers love spreadsheets.
2% doesn’t sound like much until you realize it’s forever. I’d be asking what happens if the fund underperforms. Is there any oversight?
MapleSyrupRush, good point. The franchise agreement had a committee of franchisees that reviewed the fund’s performance annually. I showed the buyer the last thryee years of meeting minutes and the ad agency’s reports. That helped.
I would have walked away. 2% of gross revenue is a lot when margins are thin., But I’m in retail, so maybe different.
SilverLining, depends on the industry. If the ad fund is generating leads that convert, it’s basically a marketing department you don’t have to manage. In HVAC, leads are everything.
I sold a plumbing franchise and the buyyer didn’t even blink at the 2%. I think it depends on how you present it. If you frame it as a cost, they see it as a cost. If you frame it as an invest ment, they see it as an investment. OP, you did the right thing by showing the ROI.
DieselDan, exactly. I also had a comparison to what independent competitors spend on marketing. Most were spending more than 2% and getting less reach. That sealed it.
Fair enough. But what if the franchisor decides to increase the percentage? Is that capped?
MapleSyrupRush, it was capped at 3% in our agreement, and any incrase required a supermajority vote. That gave the buyer some comfort.
Sounds like you had a solid case. I still hate fees, but I get it.