2022 AFDR, Part 4: Measuring Costs

Highlights from the 2022 Annual Franchise Development Report (AFDR) were unveiled at the Franchise Leadership & Development Conference (FLDC) in October.

Participants consisted of franchisors that completed an in-depth online questionnaire. Responses were aggregated and analyzed to produce a detailed look into the recruitment and development practices, budgets, spending allocations, and strategies of a wide cross-section of franchisors. The data and accompanying commentary and analysis provided the basis of the 2022 AFDR.

Highlights from the report were presented in a general session by Franchise Update Media EVP and Chief Content Officer Diane Phibbs and Wild Birds Unlimited CDO Paul Pickett. This series features selected highlights. All conference attendees received a complimentary copy.

“If you’re not tracking cost per lead and cost per sale, you should be,” said Pickett. This seems glaringly obvious, but those numbers dropped precipitously in this year’s report.

In this year’s AFDR, only 50% of brands said they track cost per lead. Compared with 70% in 2020 and 79% in 2019, this decline raised some serious eyebrows as attendees realized that half of the brands responding in this year’s AFDR do not track cost per lead. Pandemic or not, how can you plan a budget or evaluate its effectiveness if you don’t track the outcome of your efforts?

When it came to tracking cost per sale, the same trend held, with the numbers even lower: 44% of respondents said they tracked cost per sale, down from 61% in 2020 and 65% in 2019 – numbers that seem startingly low in this age of data and metrics. We’ll say it again: How can you plan a budget or evaluate its effectiveness if you don’t track the outcome of your efforts?

Cost per lead, at an average of $197 this year, tumbled from 2020’s average of $312 and fell slightly from 2019’s average of $213. The median cost per lead in this year’s report was $100. Cost per sale, which many view as the most important recruitment metric, also fell. At an average of $9,270, cost per sale was about three-quarters of 2020’s average of $12,138, and about $1,300 less than average cost per sale in 2019. We have no easy explanation for this.

Cost per lead and cost per sale are arguably the two most important metrics in franchise recruitment. The good news is that both declined in this year’s report.

Finally, as we’ve wondered in previous years, why 100 percent of franchisors don’t track these two critical metrics remains a mystery – and a major reason many development departments continue to miss their annual goals.

Next time: Sales closing ratios.