It's All in the Numbers: Research Report Provides Benchmarks And Insights Into Franchise Sales Trends

"Franchise success starts with leadership... and so does failure."

That statement from Franchise Update Media Group Publisher Steve Olson got the attention of more than 300 industry leaders at this year's Franchise Update Leadership & Development Conference, as he presented an overview of the results of the 2009 Annual Franchise Development Report (AFDR).

The AFDR, the only franchise sales and lead generation benchmark report in the franchise industry, is introduced each year during the conference. The report is drawn from the responses of participating attendees. "This year, we gathered data from 148 franchise companies with 57,000 units and more than 39,000 franchisees," said Olson.

Based on those numbers, the study identifies sales benchmarks and marketing intelligence to provide insights franchisors can use to accelerate their expansion and improve recruitment practices. A myriad of franchise concepts, investments, and budgetin numbers are collected through extensive industry surveys, executive interviews, polling information, and online and mystery shopping research.

Olson provided details from the report on how franchise recruiting budgets have continued to increase since 2006. The average franchise recruitment budget for 2008 was $175,000, up $10,000 from 2007. That figure is projected to rise to $198,000 in 2009.

Olson said the Internet continues to be the dominant area of franchise recruitment spending: nearly half (48 percent) is funneled to Internet resources, up from 45 percent in 2007, but down from its peak of 51 percent in 2006.

With so many dollars being spent online, it was no surprise to learn that the Internet was the number-one sales producer, accounting for 35 percent of all franchise sales among participants. The Internet was followed closely by referrals at 28 percent of all sales in 2008. Olson also noted that more money was being spent on print publications, PR, and trade shows, which claimed a higher percentage of sales than the year before.

"The surprising finding here," said Olson, "was the growth of the 'Other' category, which includes sources like craigslist, blogs, and social networks." This category rose to 15 percent from 4 percent the previous year. He said this is a sign of the times and franchisors should take note. Need proof? Consider that 58 of the 148 franchisors surveyed (4 in 10) placed online ads, videos, and press releases on social or business networks, blogs, YouTube, and sites like craigslist. Seven reported sales from this category, a number sure to rise in next year's report.

Of the franchisors surveyed, 34 percent reported leads are up, 18 percent said they're the same, and 48 percent reported leads are down. In the area of lead quality, 26 percent reported that the quality of their leads quality was better right now, 34 percent said it was about the same, and 40 percent said it was down.

In a real tale of the tape, Olson reported that 72 percent of those responding said they were falling below their sales goals for the year. Twenty-one percent said they were meeting their goals, and only 7 percent said they were exceeding them. Of those meeting or exceeding their sales goals, 39 percent were in the food category and 35 percent were in the service category.

These successful recruiters are mixing it up when it comes to their budgets, said Olson. "The ones hitting their sales numbers are using all kinds of media and PR channels." Nine out of 10 in this group are planning spend the same or more in 2009. And they're not afraid to pay higher salaries to senior sales executives and managers, and even pay higher broker commissions, to get the results they want. "They're willing to pay for the talent," said Olson.

Brokers continue to play a pivotal role in franchise recruiting. Half of those surveyed said they use broker networks to some degree; and 85 percent said they had closed deals from brokers. The median broker commission was $13,000.

Measuring costs is an important part of any franchise sales process. Yet, surprisingly, almost one third (30 percent) of respondents do not track their cost per lead. "But even more surprisingly," said Olson, "43 percent do not track their cost per sale." He said franchisors must track this stat in order to be effective and grow.

In the online world, the study found only one in three (32 percent) track unique visitors to their websites that convert to leads. And only half (53 percent) track unique visitors that go to their franchise request form and convert to leads. Olson suggested attendees assess their request form. "Is it too long? Too short? Does it ask for the right qualifiers at this stage of the process?"

Olson said franchisors should invest the time and resources to develop a franchisee referral program. "Only 38 percent of those we surveyed do this." Yet, he said, 60 percent reported that referrals have the highest close ratios of all lead generation sources.

"The franchise landscape has become increasingly complex, driven by an ever-expanding array of options, including Internet marketing, broker sales, outsourcing alternatives and a record number of competing concepts," said Olson. "The information contained in the Annual Franchise Development Report is designed to assist franchisors in accelerating their system growth, increase selling performance, and making smarter, more cost-effective advertising decisions."

And that's what can lead to franchise success driven by leadership.
To get the complete findings of the 2009 Annual Franchise Development Report, visit www.franchiseupdate.com/afdr or call 800-289-4232 x202.