The Unexpected Impact of Fear & Uncertainty on Lead Generation and Sales

This is the second in a series from FranConnect drilling down into their 2020 Franchise Sales Index report. The first article is available here.

Since February, U.S. unemployment has increased by 10.6 million, with an additional 4.5 million people working reduced hours. Continued instability within the economy has fanned the coals of anxiety and made it difficult to define a realistic time frame of when jobs will return. While layoffs were initially concentrated in sectors such as restaurants, travel, leisure, hotels, retail, the gig economy, and low-wage jobs, employment has recently dropped 5% in professional services, management, finance, insurance, real estate, media, and tech, as well. This speaks to a predicted “wave of higher-end unemployment” hitting white-collar workers making more than $100,000 per year, fueled by employers increasingly questioning the need and value of middle-management levels.

CNBC recently reported that there is a second wave of layoffs coming — and that 40% of lost jobs may never come back. Fear and uncertainty are reframing how we all think about health and security. With many people experiencing a desire to regain control over their lives, today’s unprecedented times are fueling a surge of interest in franchising from high-quality prospects looking for a viable opportunity to pursue business ownership.

Buyers are looking beyond the pandemic

In an all-new study of the first 6 months of 2020, we analyzed more than 600 franchise brands to understand the impact of the pandemic in the second quarter compared with Q1 2020, and found that franchise sales leads declined by 18% in Q2, with industry and brand size remaining important factors just as they were pre-pandemic. However, there is a silver lining: Even in the midst of the pandemic, tens of thousands of those new franchise leads are seeking stability in the new abnormal.

With nearly 1,000 franchise sales occurring in Q2 alone, our data reinforces the idea that these prospective buyers are looking beyond recession- and pandemic-resistant franchise brands. For example, we found that the Retail Products and Services franchise segment saw an increase in leads of 49% quarter-over-quarter, while the Automotive segment experienced an increase of 4%.

The psychology of referrals

The top two sources of deals in Q2 2020 were from two forms of referral sources: 1) franchise referral consultants (aka brokers), and 2) organic referral (family, friends, associates, and customers). 

Research has shown that referral marketing, when done well, can typically result in a 10% to 30% increase in sales. Nielsen’s Global Survey of Trust in Advertising survey highlighted a notable growing trend: Consumer trust in traditional advertising channels has markedly decreased, while personal recommendations among customers is far and away the most trusted advertising format. Personal recommendations didn’t just edge out all other options, they dominated with an 81% vote of confidence, compared with consumer online opinions, which trailed at 58%.

The FranConnect Franchise Sales Index report for the first half of 2020 showed that the greatest source of leads that became deals came from franchise referral consultants (brokers), marking the only lead source that saw an increase above pre–Covid-19 results. Franchise referral consultants also had the highest closing effectiveness rate at 5.3%, which equates to an average of 20 leads per sale. The second-highest source of leads that became sales were pure referrals, with a lead-to-deal ratio of 4.9%, translating to slightly over 20 leads per sale. Those franchise referral consultants produced 21% of all deals, and referrals represented 17% of sales, consistent with Q1.

Industries benefiting from referrals

Our data results show that enterprise brands (which we define as brands with more than 200 units) increased their hold on franchise referral consultant leads, growing from 40% to 53% of broker referrals (1,478 in Q1 to 2,420 in Q2), with all other categories remaining consistent. In analyzing business categories, we found that Commercial & Residential Services and Personal Services represented 69% of all generated leads. While the former category represents an essential services industry, the latter was significantly affected and experienced the highest number of store closures, encompassing businesses such as fitness centers, hair salons, and massage therapists. This reinforces the notion that prospective buyers are capable of looking beyond the pandemic. Other sectors that benefited the most from franchise referral consultants include Business Services, Automotive, and Retail Food.

Transitioning from leads to actual sales, we found that Commercial & Residential Services generated the most deals, followed by Business Services and Personal Services. The number of deals culminated in Q2 are equal to or better than those in Q1. The net change between Q1 and Q2 shows an increase in closing effectiveness conversion rates from an average of 4.7% to 5.3%.

Now is the time to leverage family, friends, and associate referrals

Referrals have consistently ranked as a top lead-to-deal source over the years, stemming primarily from franchisees who have shared their positive experiences with those in their circle of trust. Within this category are customers who are fans of the brand pursuing their own opportunities or who otherwise have provided “social proof” to determine the viability of an opportunity. When it comes to recommending or pursuing an opportunity, prospective buyers are listening to those they know, respect, and trust.

Among brands with 200 to 800 locations, we found slippage in referrals in all segments. Enterprise brands, however, reported an increase in Q2 over Q1. Referrals represented the second-highest source of deals in Q2 at 17.2%, a decline of 39% compared with Q1. That said, it still remains a proven and consistent source of the highest-quality leads going back 5 years since we began tracking this metric.

The average lead-to-deal ratio came in at 4.9% — very similar to that of franchise referral consultants, with approximately 20 leads to one sale. That’s pretty impressive when you consider that the current lead-to-deal ratio of all combined sources is only 0.9%— or approximately 110 leads to make one sale.

Top 5 referral sources

The top 5 sources of referral deals by industry were:

Personal Services: 37% (although the largest percentage of deals, this is a 65% quarter-over-quarter decline)

Commercial & Residential Services: 26%

QSR/Fast Casual: 10%

Retail Products & Services: 9%

Business Services: 7%

From suspending royalties and quickly adapting your business model, to helping navigate PPP loans and lease negotiations, many of you have done everything within your power to support franchisees through these times. Leverage the goodwill you’ve generated among your operators by asking them to record a testimonial expressing their satisfaction with the brand. This can be shared with their personal networks, as well as with potential prospects through recruitment materials and marketing campaigns. A positive franchisee experience, particularly in these trying times, can be a tremendously effective tool to fuel franchise development and lead generation efforts.

To read the full 2020 Franchise Sales Index, click here.

Keith Gerson is President of Franchise Operations at FranConnect, a recognized leader in franchise management software. For the past decade, he has worked closely with executive boards and leadership teams that are part of the company’s portfolio of more than 800 brands and 150,000 locations, with a focus on helping franchisors achieve their desired goals in sales, operations, and marketing. For more information, best practices, and guides, visit the company’s Resources Page.