2023 AFDR Highlights, Part 5: Measuring Costs

Highlights from the 2023 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 questionnaire online. 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 for the 2023 AFDR.

A total of 101 franchisors participated, representing 21,802 franchised units and 2,044 company-owned units. Despite predictions of a recessionary year ahead, participants plan to open a total of 1,725 new franchised units in 2023.

Highlights from the report were presented in an FLDC general session by Franchise Update Media EVP and Chief Content Officer Diane Phibbs and Wild Birds Unlimited Chief Development Officer Paul Pickett. Below is the fourth in a series of selected highlights. All conference attendees received a complimentary copy of the 2023 AFDR.

Measuring Costs

Big picture? Cost per lead rose and cost per sale dropped. Now for some numbers.

• Cost per lead. Among this year’s respondents, 63% said they tracked cost per lead (which means more than 1 in 3 did not!). That compares with 50% in 2021, 70% in 2020, and 79% in 2019. While this metric is up from last year, why it isn’t closer to 100% leaves us baffled year after year. Pandemic disruptions aside, how can you plan a budget or evaluate its effectiveness if you don’t track the outcome of your efforts?

Among those who did track cost per lead, their average spend was $155, which fell from $197 in 2021 and $312 in 2020.

• Cost per sale. Only half (50%) of participants tracked cost per sale. While that’s up from 44% in 2021, it’s down from 61% in 2020. So, half of those who took the time to fill out the AFDR online survey said they did track their cost per sale. Seriously, franchisors? Really? Why not? Among those brands that did track this all-important metric, their average cost per sale of $10,086 in 2022 came in between that of 2021 ($9,270) and 2020 ($12,138).

Cost per lead and cost per sale are arguably the two most important metrics in franchise recruitment. What Paul Pickett said at last year’s AFDR reveal is something the presenters have been saying for years: “If you’re not tracking cost per lead and cost per sale, you should be.”

Finally, as we seem to wonder year after year, why 100% of franchisors don’t track these two critical metrics remains a mystery—and a major reason many development departments continue to fall short of their annual goals.

Next month: Sales Closing Ratios