How Do Franchise Marketing Agencies Get Paid?
When answering the question, “How Do Franchise Marketing Agencies Get Paid?” there are a few different options that franchise marketing agencies employ, including:
- Flat Management Fee
- % Of Ad Spend
- Flat Management Fee + % Of Ad Spend
- % Of Sale
Let’s walk through each of these approaches.
Option #1: Flat Management Fee
Here at Lead PPC, this is actually the approach that we typically go with. Unless a company is spending over around $10,000-$15,000 / mo. on their franchise development ads, we tend to just charge a flat rate. For us, that rate is usually between somewhere around $750-$1,000 / mo. depending on a few factors such as initial starting ad spend, how often the ads will need to changed, what industry they are in, and honestly how easy that client will be to work with. We try to give a break especially to newer franchisors that have little to no budget to work with and may only have enough funds to advertise for a few months and hope to get a sale before they need to turn off their ads.
On the ad spend side of things, since we know the industry well, have worked with 250+ franchise brands, and are frugal with how we choose to spend people’s advertising budget, we are able to start with ad budgets that are as low as around $1,500 /mo. And we do not typically charge any additional management fees when people choose to increase their ad budget as long as it’s not above around $10,000-$15,000 / mo.
We hear through talking with our existing and prospective clients that most franchise marketing agencies charge between about $1,250-$2,000 / mo. if they go with a flat rate. And many franchise agencies also demand that their clients spend between about $5,000-$10,000 / mo. While here at Lead PPC, we do have many clients that choose to spend this amount, we typically do not recommend starting with this amount unless you are already used to closing a lot of deals through online advertising or broker networks (ie you have many franchise development reps in-house on staff or are working with a high volume Franchise Sales Organization aka FSO).
Option #2: % Of Ad Spend
A common approach for many ad agencies is to charge a % of ad spend. I think this approach can work well for Ecommerce clients or even Lead Generation driven businesses as long as they spend at least $10,000 / mo. on ads.
What I don’t like about this for franchise development marketing is that it doesn’t make sense for most franchisors to spend $10,000+ / mo. on their franchise ads. Most franchisors are better off spending between $1,500-$5,000 / mo. on their ads and then taking whatever profits are produced by that and working with 2-3 Franchise Broker Networks so that they have multiple lead sources with different types of leads coming through.
Having said that, we do have several clients that spend between $10,000-$75,000 / mo. on their ads. But, they are the anomaly not the common situation.
Option #3: Flat Management Fee + % Of Ad Spend
Some agencies choose to go with a flat management fee plus a % of ad spend. An example would be something like $1,000 / mo. + 10% of ad spend. So, if a client spent $5,000 / mo. on their ads they would be playing $1,000 + $5,000*.1 = $1,500 /mo. in management fees.
The reason why we at Lead PPC chose to not go with this model is that it’s a total pain to calculate each month what the billing amount should be for each client. Also, sometimes agencies will push hard to spend more money because the agency makes more money. This is fine for many industries like Law Firms, Pest Control, etc. but for franchise development, it’s a bit of a distraction.
Even on the local franchise marketing side of things where we help local franchisees drive more customers to their shops, all of the franchisees that we work with pay some type of a flat rate like $200-$450 / mo. depending on the franchise brand and how much time it takes to fulfill those ads.
Option #4: % Of Sale
This is an option that we get pitched on at least a few times a year by various franchise brands. I personally have just never loved it.
Conceptually it makes sense, and also since many franchisors work with Franchise Broker Networks, they are used to paying a large commission amount and very little if there isn’t a sale.
For us, so much of the sales process is out of our hands, and it takes the same amount of work either way. Also, since we have worked with hundreds of franchisors that are willing to pay a small flat rate, we have never really pursued the % of sale model.
However, if I were to ever decide to open up a division of our company that is an FSO, it might be something that I would consider doing. But, that isn’t anywhere in our roadmap.
Hopefully this is helpful to some people out there that are trying to understand how agencies get paid. We’ve also heard of some other weird models out there like where agencies charge a “hosting” fee that is quite significant and have PPC as a mixed part of their SEO package. I’ve never seen an agency do a good job on the actual franchise ads that do this. However, some of them are decent at SEO.
If you would like to speak with us about potentially having us help drive quality franchise leads for your franchise please fill out our Contact Us form.
Entrepreneur with a focus on Lead Generation, Google Adwords, Bing Ads, and Conversion.