Question

Advertising fees that franchisees have to pay the franchisor are typically less than ________ percent of gross income.

a) 1
b) 2
c) 3
d) 4
e) 5

Answer 1

Advertising fees paid by franchisees to the franchisor are usually less than 4 percent of their gross income. These fees fund collective advertising efforts, benefiting franchisees through economies of scale.

Step-by-step explanation:

Advertising fees that franchisees have to pay the franchisor are typically less than 4 percent of gross income. The advertising fee is often used for national or regional advertising efforts on behalf of all the franchisees, and by pooling resources in this way, franchisees benefit from economies of scale in advertising they wouldn't achieve independently.

This fee is stipulated in the franchise agreement and can vary from franchise to franchise, but it is generally kept at a relatively modest percentage to encourage compliance and ensure that franchisors are getting ample visibility without unduly burdening franchisees.