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Each year, for more than a decade, Franchise Update Media Group has surveyed hundreds of franchisors about their sales and development practices and compiled the results in its Annual Franchise Development Report (AFDR).
For the 2011 AFDR, we gathered data on sales and recruitment practices from 126 franchisors representing more than 42,000 units (38,563 franchised and 3,528 company-owned). Their responses are sorted and analyzed to provide an in-depth view into the recruitment and development practices, budgets, and strategies of a wide cross-section of franchisors. Below is the third, and final, installment of sample highlights from the report. (See selected highlights from Part 1 and Part 2, presented in the two previous issues of this newsletter.)
In analyzing these numbers, Olson says, measuring cost per lead is least important. "The key number is acquisition costs: How can you establish a development budget if you don't know what selling a franchise will cost you? Say you want 40 franchises this year and I give you $80,000 to do that. If your cost per deal is $5,000, you'll need $200,000--the $80,000 budget won't even keep your sales on life support!" The point, he says, is that franchisors must determine their cost per sale and budget accordingly.
Also, he notes, with sales/recruitment budgets going down and franchisors spending a median of $3,000 more per sale, there could be problems down the road for franchise recruitment efforts.
One way franchisors continue trying to boost sales, he says, is by reducing franchisee startup costs. "Everyone is talking about lifetime royalty stream to justify the lower up-front costs."
Finally, he says, in a time of tight budgets and a declining, more cautious pool of applicants, it is more critical than ever to measure your marketing ROI. "You will save thousands of dollars per year by determining where your best sales sources are. Too many companies unfortunately continue to base their advertising buys on cost per lead."
"Success isn't based on providing a fee, but in creating a referral program--and a system to let franchisees know about it," says Olson. Components of such a program could include a newsletter, noting how many franchisees have come aboard, recognition at the company's conference for franchisees or employees who have provided referrals, and putting together a year-round awareness campaign to boost greater activity. While franchisors often get a flurry of early leads when a referral program is introduced, the most important component of success is to promote it on an ongoing basis, he says.
"The majority of people don't know how to buy a franchise. We have to give them start points they're going to follow on our websites to draw them through the sales process," says Olson. Up until 2009, he says, franchisors just didn't do that. "Now that there's a systematic process leading them through the website, it works for both sides; they're engaged in a logical process." The use of a navigational starting point on franchisor websites was up to 28 percent, compared with just 6 percent the year before. If you create a path and provide an order for navigation from lead to finish to draw prospects through that, says Olson, sales are bound to improve.
To learn more or order the 2011 Annual Franchise Development Report, click here.
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