1851 Growth Club: How Do You Budget for Franchise Growth?

1851 Franchise CEO Nick Powills provides The 1851 Growth Club as a resource to members of the franchise broker community, providing them with the tools they need to support their clients. One particularly tricky obstacle all members of this community need to face is deciphering a budget for franchise growth. Powills understands this particular hurdle well and has helpful advice to help you tackle this challenge head-on. 
 

Budgeting for franchise growth is a complex undertaking that is dependent on various factors; namely, the brand and your given industry. While it may seem tempting to simply select a desired budget based on what you are comfortable spending, you will be faced with fierce competition. Many sources will be vying for a potential business buyer’s attention. Powills explained that you need to consider “all the broker networks that are trying to get in front of the candidate, and then you need to consider all of the advertising that was created, costing perhaps millions of dollars, to get that candidate into the brand you're competing against.” This will help you understand just how critical your budget is.

Powills recommends two ways of looking at your budget. 

The first option is to consider “your franchise fee as your cost of acquisition,” explained Powills. “If you have a $30 thousand franchise fee, you need to be willing to spend $30 thousand to strike a deal with a franchisee.”

The second option is to “figure out what your deal value is,” advised Powills. “The way to do that is to consider what you expect to pull in from royalty over one, two or three years as a benchmark, and ask yourself if you would be willing to spend all that for lead generation.”

While Powills stresses the importance of understanding and pinning down your budget, he concedes that “if you haven't defined the ‘why you, why now’ of your business, the budget ends up being irrelevant, which is why the budget has to come last in this process.” 

Have a clear understanding of your brand’s message before you can deliver it. And as a general rule, Powills advised brands to spend $25K per deal. While this seems like a massive investment, the returns can be tremendous. 

If you are confident that you will reach a certain dollar amount, you should use that number to guide your growth budget. Consider this scenario: You are a franchisor who has decided to spend $10K per deal. You anticipate earning around $50K in first-year royalties from a new franchisee. Over five years, this amounts to $250K. If someone offered you $250K in cash right now, how much would you be willing to part with in exchange? Surely, more than, say, $10K. If you know there is a pathway to $250K, you need to adjust your spending accordingly to ensure you get there and make the most of the opportunity. 

As a way of budgeting more securely, Powills recommended that you build rolling budgets into your plan, so as you encounter more success, you build up your budget. Franchising can get expensive, so you need to continuously consider and reconsider your spending. 

“When you are thinking of your budget for next year, I would recommend three things: one, set some cash aside; two, create a rolling budget mindset, so that every time you close a deal you put more money back in the budget; and three, do not turn off the faucet,” he said. “Keep your momentum going.” 

Think of franchise growth as a locomotive; if it halts or hesitates, it takes a great deal of time and effort to regain momentum. 

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