Highlights from the 2012 Annual Franchise Development Report

By: Eddy Goldberg
Published: January 4th, 2012

Last month we published a high-level overview of the 2012 Annual Franchise Development Report (AFDR). The following is a selection of some of the many in-depth findings from the report.

• Recruitment budgets. In one of the more interesting changes from the past two years—when median recruitment budgets dropped from $88,000 in 2010 to $80,000 in 2011—2012 median recruitment budgets are $125,000, an increase of more than 50 percent. That number, however, is still below the $138,000 medians of 2008 and 2009. “Franchisors have recognized the changes,” says Steve Olson, president of Franchise Update Media Group. “To grow again franchisors have to invest again—in lead generation and in improving the efficiency of their sales process.”
• Where the money goes. Internet spending, which held steady in the 47 to 50 percent range from 2008 through 2011, is projected to fall to 40 percent in 2012. Spending on print (17 percent) and trade shows (14 percent) has remained fairly steady since 2008, and is expected to remain so in 2012. One change: public relations spending is budgeted at 15 percent for 2012, up from 10 percent in 2011 and 11 percent in 2010. “Other,” at 14 percent, has risen steadily in the past 5 years, most likely from increased spending on social media and optimization of franchisors’ own websites.
• Internet spending. The most notable shift here is the decline in spending for online ad portals, which fell from 61 percent of responders in 2010 to 51 percent this year; 2012 projections are about the same, at 50 percent. Spending on search engine optimization (SEO), after rising from 18 percent in 2010 to 24 percent last year, is budgeted to fall slightly in 2012 to 21 percent. Pay-per-click spending, at 15 percent and 14 percent in 2010 and 2011, respectively, is expected to climb to 19 percent this year. Spending for social networking is expected to remain at 2011’s level of 10 percent, up from 6 percent in 2010.
• Top sales producers. For the first time since 2007, the Internet was not the top lead producer, falling to second place (30 percent), just behind referrals at 31 percent. Sales produced through external Internet sources have fallen steadily from the 41 percent level recorded in 2007. Referrals, which produced 37 percent of sales in 2007, dwindled to 25 percent in 2010 before rebounding to 31 percent this year. Broker sales remained steady at 17 percent for three consecutive years. In a puzzling development, especially in an era of improved metrics and technology tools to track sales sources, the “Other” category has risen steadily from 4 percent in 2007 to 20 percent in 2011. In other words, one in five respondents either doesn’t know where sales are coming from, or the choices of Internet, referrals, brokers, and print did not apply; or perhaps more sales are coming from franchisors’ own websites, thanks to improved SEO.
• Top Internet sales producers. In terms of sales (versus spending), for the first time ever, SEO topped the list at 34 percent in 2011, up from 28 percent in 2010. “That’s good,” says Olson. “SEO should be the top sales tool for franchisors, especially with the increasing use of Google Analytics. All roads lead to your website.” One strong indicator that franchisors have improved at tracking the results of their Internet spend: the “Don’t Know” category fell significantly from the previous year, dropping from 24 percent to just 7 percent in 2011. Online ad portals, at 32 percent in 2011, were down from 35 percent in 2010, but still ranked near the top. Pay-per-click and social media provided the lowest return, but while PPC dropped from 11 percent to 5 percent from 2010 to 2011, social networking rose from 2 percent to 5 percent.
• Online alternative resources. One important trend to note here, says Olson, is that this category is beginning to produce more sales. Selling franchises through social media platforms still ranks quite low on the totem pole in terms of total sales, but the numbers are climbing as franchisors learn to use these new channels. In 2011, 90 of the 110 respondents (82 percent) placed online ads, videos, or press releases on social or business networks, blogs, YouTube, Craigslist, etc., compared with 58 of 126 respondents (46 percent) in 2010. In 2011, 13 of 110 franchisors (12 percent) reported sales from social media, compared with only 5 of 126 (4 percent) the previous year. Olson says franchisors should continue experimenting with social media as a sales tool, integrating it into their overall sales strategy.

Next time: More highlights from the 2012 AFDR, with additional categories from the survey, including: Social Media Deals, Overall Closing Ratios, Brokers, Franchise Sales Performance, and Franchisors Exceeding Goals. Too curious to wait? Read the complete story, with graphics, which appeared in the fourth quarter issue of Franchise Update magazine now.

The complete report, with analysis and benchmarks, is available for $399. For ordering information, contact Sharon Wilkinson at 800-289-4232 x202 or sales@franchiseupdatemedia.com. You also can order online.

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