How Much Should Your Franchise Be Spending Per Sale?

Franchise sales, like everything else in franchising, ultimately come down to return on investment. Selling a franchise is a big deal, and prospective franchisees like to take their time and kick the tires a lot. That’s why having a dedicated franchise sales team makes all the difference in closing leads. But how much should franchisors spend per sale?

Adam Goldman, CEO of FranchiseCoach.net, has a good rule of thumb. 

“Whatever you spend to acquire someone should be maximum 20-25% of the profit on the sale, and ideally 10%. So if you’re a company making a lifetime value of $700,000 or $1,000,000 on a sale, you shouldn’t spend more than $100,000 on the sale,” said Goldman. 

Mark Siebert, an esteemed franchising author and the CEO of iFranchise Group, said that franchises need to watch their cost per lead when trying to find the golden number and to expect that number to vary over time. 

“Historically, going back to 2010-2019, the median cost per lead would have been somewhere around $7,000 to $10,000, and usually there’s about a 12 to 14 week lead time in the sales. In 2020, basically nobody sold any franchises in the first half of that year. Brands got a lot of leads in January and February, but then the pandemic hit,” he said. “So those sales stalled and this year, the average came in at around $10,000 to $15,000. In 2021, we’re anticipating that the cost per lead will go down.”

Basically, with lots of people unemployed and a flood of “corporate refugees” who still have money in a strong stock market, some franchises will sell quickly. 

“It’s particularly interesting in today’s market. Close rate should go up and we’re expecting the cost per lead to go down to $6,000 to $8,000,” he said. “This is my first pandemic, so I’m sort of speculating, but that’s what we predict.”

But don’t expect all brands to benefit equally from the new wave of potential franchisees. 

“One thing that correlates positively with the lower cost per sale is the size of investment,” said Siebert. “Smaller sized business investments could see cost per lead go way down. An awful lot of people are going to be unemployed with a lot of money to devote to something. Franchise businesses that people can get into for around $100,000 — those are going to fly off the shelves.”