Successful franchise recruitment requires building a marketing plan that produces qualified prospective buyers at acceptable costs. This isn't an easy task, especially in our new media age, where franchise buyers now access multiple recruitment and educational sources to research franchise opportunities.
During the 1980s, the majority of franchise buyers had a few sources for finding franchise opportunities, similar to how TV viewers were captive to the major networks. Entrepreneur magazine, the Wall Street Journal, major city papers, and national franchise shows composed 90 percent of media budgets. Developing lead generation plans was the easiest part of the recruitment process. No longer!
How to build an intelligent lead generation budget
Years ago I recall the terror in my franchise client's voice when he returned from his annual meeting. "My CEO was ecstatic with our 40 sales this year. But then he announced we need 70 more franchise sales for next year, with only a 10 percent increase in the marketing budget! How can we make this happen without the necessary funding?" He was right! Their service company couldn't ratchet up sales from 40 deals one year to 70 the next with the measly budget increase the CEO allocated for the new, accelerated goal.
All too many companies shoot in the dark when it comes to establishing franchise goals and corresponding budgets. There's a common misconception that if a successful sales team gets more aggressive and works harder, they'll catapult sales performance through their innate talents. Not so. Over the past two decades misdirected planning practices have thrown some franchises into tailspins because of unrealistic development expectations.
If you know what you're doing, building an intelligent lead generation budget isn't that difficult. Shockingly enough, the Annual Franchise Development Report once again reveals that 31 percent of franchisors surveyed do not track cost per lead and 35 percent do not track cost per sale. Thus they don't know how effective their marketing dollars are in producing franchise owners. This is due either to inexperience in knowing how to determine what really works, or to the franchisor not caring enough to invest the time and energy to discover the answers. Here's how to find those answers:
Use sales performance history -- What was your cost per sale for your various lead generation sources over the past year? The current overall median is $9,452 per franchisee sold, according to the survey results. This figure often varies by industry and/or size of investment. Some low- and mid-level investment opportunities surprisingly do require higher budgets. I've found that sales-driven systems, such as direct mail franchises and temporary personnel services, require significantly higher budgets. If you are a new or misguided franchisor groping for benchmarks, purchase Franchise Update's Annual Franchise Development Report or email email@example.com. And ask savvy franchisors what they are experiencing. You have to budget an average cost per acquisition to know where you are going.
Track costs by advertising categories -- How many sales have you generated from your $20,000 spent on various Internet advertising? How many deals from your $10,000 invested in two franchise shows? What about the $2,500 you spent in promotional mail-outs and posters to franchisees and employees about your internal referral incentive program?
Track costs by individual sources -- Years back, mass newspaper advertising was a home run in producing sales for the five franchise concepts owned by Grow Biz, the successful franchisor of recycled retail merchandise. Yet a Connecticut newspaper grabbed $30,000 of their budget before the marketing director discovered that publication never generated a single qualified lead, let alone a sale! Tracking is particularly important in measuring the cost-per-sale figures of your Internet advertising, which requires more diligent tracking through a lead management process; and quizzing new franchisees about how they found out about you on your franchise application, phone calls, and the Discovery Day visit.
Time-to-sale ratios -- Measuring your average number of days to closing from initial inquiry is essential when a special recruiting campaign is launched for a limited time. I remember the 60-day bonus program a founder wanted to implement with a franchise broker organization. I had to remind him that his franchise sales cycle averaged 75 to 90 days! If you don't know your closing cycle, start measuring now. On another note, if your sales are averaging six months or more, this is usually a red alert that your sales process or sales personnel need drastic correction ($1 million-plus investments requiring large real estate commitments are often the exception). For reference, the average sales close takes 12 weeks from initial inquiry.
Multi-unit ratios -- What is the average number of franchise units a new franchisee usually purchases? One? Two and a half? This is easier to calculate for established franchisors. Factor this ratio into your budget so you can project the unit and cash expectations for each sale.
This is an excerpt from my Amazon.com best-selling book, "Grow to Greatness: How to build a world-class franchise system faster." To order copies, click here.
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