Will is currently completing his Juris Doctor at the University of Melbourne and is interested in helping to provide equitable and efficient access to legal resources.
Contents
If you’re building a franchise network, marketing can be the difference between a steady pipeline of customers and a lot of empty foot traffic.
That’s why many franchise systems set up a marketing fund (sometimes called an advertising fund, brand fund, or national marketing levy). It sounds simple: franchisees contribute, the brand benefits, and everyone grows.
In practice, marketing funds are one of the most common sources of franchisor-franchisee tension. The tricky part isn’t “should we market?” - it’s how the money is collected, who controls it, what it can be spent on, and how you report back.
This guide is updated for current expectations around transparency and digital marketing spend, and it’ll walk you through what you should know as a New Zealand franchisor so you can set your system up properly from day one.
What Is A Marketing Fund (And Why Do Franchise Systems Use Them)?
A marketing fund is a pool of money collected from franchisees (and sometimes also contributed to by the franchisor) to pay for marketing and promotional activity that benefits the franchise network.
Marketing funds are popular because they solve a few practical problems at once:
- Consistency: you can run brand-wide campaigns and keep messaging consistent across locations.
- Scale: pooled funds can support bigger campaigns than individual franchisees could afford.
- Efficiency: the brand can negotiate better rates with agencies, platforms, and suppliers.
- Fairness (when designed well): franchisees aren’t left guessing how much to spend, and you avoid the “free rider” problem (where some stores benefit from marketing funded by others).
Just be careful about the assumptions in the background. Franchisees often assume:
- their contributions will be spent only on marketing that benefits them (directly or indirectly); and
- the franchisor won’t use the marketing fund as a “general revenue top-up”.
Those expectations should be managed with clear drafting and consistent reporting - otherwise you risk disputes, reputational damage, and in the worst cases, claims that the fund is being misused.
How Should A Marketing Fund Be Structured In Your Franchise Agreement?
Your marketing fund should be clearly documented in your franchise agreement and (where relevant) any operations manual and policies. “We’ll work it out later” tends to create conflict later.
At a practical level, the structure usually comes down to five core questions:
1) Who Contributes, How Much, And When?
Your agreement should spell out:
- Contribution rate: fixed fee, percentage of gross sales, or tiered contributions.
- Payment frequency: weekly, fortnightly, monthly.
- Collection method: direct debit, invoice, or deducted from settlement (if relevant to your model).
- Late payment consequences: interest, default processes, and recovery costs.
It’s also worth being explicit about whether GST is included or additional, and how it’s handled in invoicing.
2) What Counts As “Marketing” (And What Doesn’t)?
This is where you’ll want to be very clear. Typical permitted expenses might include:
- brand-level advertising (search, social, radio, print, outdoor)
- website development and maintenance (where it supports marketing and customer acquisition)
- SEO, content production, video production, photography
- campaign creative and agency fees
- PR and communications
- promotional materials and templates franchisees use locally
- market research and brand strategy
Common areas of disagreement include whether the marketing fund can pay for:
- Franchisor overheads (eg, salaries and admin costs)
- New franchise sales marketing (marketing to recruit franchisees rather than customers)
- Technology and software (eg, CRM, booking systems, loyalty platforms)
None of these are automatically “wrong”, but they become risky if your documents don’t clearly authorise them and your franchisees weren’t expecting that spend.
3) Who Controls Spending Decisions?
Most franchise systems sit somewhere on a spectrum:
- Franchisor-controlled fund: you make the final call on campaigns and suppliers.
- Committee/advisory model: franchisee representatives provide input or approvals (depending on your drafting).
- Hybrid model: franchisor controls day-to-day spend, but major spend items require consultation or committee sign-off.
Whichever approach you pick, write it down clearly, including how committee members are selected, voting rules, and what happens if there’s a deadlock.
4) Is The Fund Held Separately And What Happens To Surpluses?
Consider whether your documents require the marketing fund to be held in a separate bank account (many systems do this for transparency).
You should also cover:
- whether unspent funds roll over to the next period
- whether there’s a cap on surplus amounts
- what happens if a franchisee leaves the system (usually contributions aren’t refundable, but it should be clear)
5) Can You Change The Contribution Rate?
If you want the ability to change the marketing levy, you’ll typically need a clause allowing adjustment (often with notice requirements, maximum caps, and/or consultation requirements).
Be careful here: sudden increases without clear authority can become a fast track to disputes.
Because marketing fund terms sit inside the broader franchise relationship, it’s worth ensuring the franchise agreement itself is properly drafted and reviewed as part of your wider Franchise Agreement documentation.
What Are Your Key Legal Risks (And How Do You Avoid Disputes)?
Marketing funds aren’t just a budgeting issue - they’re a relationship and risk management issue.
Here are the most common legal and commercial risks we see when marketing funds aren’t handled carefully.
1) Misleading Or Unclear Promises About Marketing
If your franchisees were told (formally or informally) that the marketing fund would be used in a particular way, and that doesn’t happen, you can end up with allegations that expectations were misrepresented.
In New Zealand, franchisors need to be mindful of the Fair Trading Act 1986 - including the risk of misleading or deceptive conduct in trade. This isn’t only about advertising to customers; it can also be relevant to how business opportunities are promoted and represented.
Practical tip: make sure your marketing fund description is consistent across:
- your franchise agreement
- your disclosure documents and sales materials
- your recruitment conversations and emails
If you’re using standard terms with franchisees (which most systems do), it’s also worth understanding the general risk areas around standard form contracts so your drafting stays clear and fair.
2) Spending On “Brand Building” That Franchisees Don’t See As Benefiting Them
A common pain point is when franchisees feel the fund is paying for “nice-to-have” brand projects rather than customer-generating marketing.
To reduce that friction, you can:
- set a clear annual marketing plan and budget
- explain the rationale behind spend items (especially long-term brand initiatives)
- separate “customer marketing” from “network growth” spend (or expressly allow both)
Even where your agreement gives you broad discretion, good communication is often what keeps a fund from turning into a flashpoint.
3) Poor Record-Keeping And Reporting
Even if every expense is legitimate, poor reporting can make it look like the fund is being mishandled.
At a minimum, you should be able to quickly show:
- how much was collected and from whom
- what was spent, when, and on what supplier
- what the outcomes were (where measurable)
- what remains in the fund
If your franchise system grows, this becomes even more important. It’s much easier to put good reporting habits in place early than to retrofit them when your network is already frustrated.
4) Data And Privacy Issues In Modern Marketing
Marketing funds often pay for customer databases, email campaigns, loyalty programs, and targeted advertising - which can involve collecting and using personal information.
That means you need to think about your Privacy Act 2020 obligations and align responsibilities between franchisor and franchisees. For example:
- Who “owns” the customer data?
- Who is responsible for responding to access requests or complaints?
- What happens if there’s a data breach involving marketing systems?
If your franchise group collects personal information through websites, online bookings, or mailing lists, a tailored Privacy Policy (and consistent collection notices) is a key part of staying compliant and reducing risk.
What Should You Include In Your Marketing Fund Policy And Reporting Process?
Your franchise agreement sets the legal framework, but day-to-day trust is usually built through your marketing fund policy, your processes, and your reporting cadence.
A strong marketing fund policy typically covers:
Scope And Purpose Of The Fund
- What the fund is for (brand awareness, lead generation, promotions, etc.)
- Whether it supports both national and local marketing
- Whether franchise recruitment marketing is included or excluded
Approval And Governance
- Who can approve spend (and at what thresholds)
- Whether franchisees are consulted or represented via a committee
- How conflicts of interest are managed (eg, if you own the marketing agency or receive rebates)
Budgeting And Planning
- Annual or quarterly marketing plans
- How campaigns are prioritised across regions
- How local area marketing fits alongside national campaigns
Financial Management
- Whether there’s a separate bank account
- How GST is handled
- What happens to surpluses and deficits
- Whether the fund can borrow or be topped up by the franchisor
Reporting Cadence
Decide what you’ll report and how often (monthly, quarterly, annually). Your reporting might include:
- a profit and loss summary for the marketing fund
- a spend breakdown by channel (Google Ads, Meta, radio, etc.)
- campaign snapshots (what ran, where, and why)
- performance reporting (where relevant - eg leads, bookings, web traffic)
The main goal isn’t to drown franchisees in spreadsheets. It’s to show the fund is managed responsibly, aligned to the brand strategy, and delivering value.
How Do Marketing Funds Interact With Local Area Marketing And Brand Standards?
Most franchise systems don’t rely on the marketing fund alone. Franchisees are often also required (or encouraged) to spend locally - for example, on community sponsorships, flyers, local social media ads, or partnerships.
To keep your brand consistent, you’ll usually set brand standards and require franchisees to follow approved templates, logos, and messaging.
A few practical points to document clearly:
National Vs Local Marketing Responsibilities
- What the marketing fund covers (eg national campaigns, website, brand assets)
- What franchisees must cover locally (eg local promotions, community engagement)
- Whether local marketing spend must meet a minimum percentage of sales
Approval Processes For Local Marketing
If franchisees run their own local campaigns, consider:
- when they need approval (eg before publishing paid ads or signage)
- what happens if they don’t get approval
- who owns local social media pages and accounts
This is also where the legal side of advertising matters. If a franchisee advertises misleading prices or makes incorrect claims, it can reflect on the whole brand - and may expose the wider system to risk under the Fair Trading Act.
Supplier Relationships, Rebates, And Transparency
Sometimes marketing suppliers offer rebates, incentives, or “contra” arrangements (like free media value). If those exist, your documents should address:
- whether rebates belong to the marketing fund or the franchisor
- how rebates are disclosed and recorded
- how supplier selection decisions are made
Transparency here is important, because undisclosed benefits can quickly create distrust.
If you’re also documenting other ongoing franchise system rules (like usage rules for software, email, and brand assets), it can be worth aligning them with your broader Acceptable Use Policy approach so the network is consistent about what’s allowed.
Key Takeaways
- A marketing fund can be a powerful growth tool for your franchise network, but it needs clear rules around how it’s collected, managed, and spent.
- Your franchise agreement should define contributions, permitted uses, governance/decision-making, financial handling (including surpluses), and how changes to the levy can be made.
- Marketing funds can create legal and relationship risk if franchisees feel the fund is being used unfairly or in a way that wasn’t properly disclosed - consistency with the Fair Trading Act 1986 is key.
- Good reporting and record-keeping aren’t optional in practice; they’re one of the best ways to build trust and prevent disputes as your franchise system grows.
- Modern marketing often involves customer data, so your marketing activities should align with the Privacy Act 2020 and be supported by a fit-for-purpose Privacy Policy.
- Clearly separate (and document) national marketing fund spend versus local area marketing obligations, including brand approvals and advertising standards.
If you’d like help setting up (or reviewing) your franchise marketing fund terms and governance, we’re happy to help. You can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
