2011 Outlook: Annual Franchise Development Report Shows Mixed Results Part 3 of 3

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.)

• Measuring costs. Sixty-nine percent of respondents trac their cost per lead, compared with 67 percent the previous year. Slight improvement yes, but read another way, nearly one third (31 percent) still do not track cost per lead. Of the 126 franchisors, 65 percent track cost per sale, compared with 57 percent the year before, a more important consideration; but again, more than one in three (35 percent) did not. The acquisition cost of both leads and sales rose over the previous year: median cost per lead increased to $54, up from $43 the year before; and median cost per sale rose from to $10,000, up from $7,000 the year before.

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."

• Referrals. For more than half of respondents (54 percent), referrals have the highest close ratios (compared with 50 percent the year before). Almost two thirds (62 percent) provided incentives to franchisees (vs. 65 percent the previous year). This followed a huge leap from 2008, indicating that the number of franchisors providing incentives has leveled off. Median referral fees of $3,500 remained steady year over year. Referrals continue to have, by far, the highest close ratios of all lead generation sources, but there's more to success in this endeavor than providing incentives to franchisees.

"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.

• Qualifiers. The use of qualifiers or lead screeners in the sales process was a hot topic this year. Nearly four in 10 (38 percent) participants in the 2011 AFDR employ qualifiers; of those, nearly six in 10 provided their qualifiers with a commission in addition to their base salary. Shelly Sun, CEO of BrightStar Care, 2010's STAR Award winner for Best Telephone Prospect Follow-Up, says qualifiers have "the highest ROI in the entire sales cycle to move an initial prospect to a lead and a lead into a closed sale."
• Web analytics. The number of franchisors using web analytics to evaluate the results of their online recruitment spending rose to 79 percent, up from 68 percent the previous year. "More franchisors are starting to use metrics to improve their websites--or at least have installed analytics," says Olson. "Consequently, there's been an improvement in the websites that have been analyzed." The average franchise conversion rate of visitors to leads through franchisor websites rose slightly to 1.9 percent, compared with last year's 1.7 percent. In today's marketplace, that could be more of an achievement than the statistics would indicate. "The better we get at reducing site abandonment the better off we are," says Olson.
• Website navigation. The importance of building a clear navigation path into your website to guide visitors through a process--much as your franchise has developed recruiting steps for the sales team to use with prospects--also was a big topic of discussion this year. Olson says this is due to what he called "breakthrough research intelligence provided to us" in the past year, and says this was responsible for the biggest success franchisors are having in improving the effectiveness of their websites.

"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.

AFDR DATA DRIPLET

Measuring Costs