Perfecting the Franchise Sales Budget

Putting together a budget requires you to balance what you can afford against what you need or want to buy. The first step in creating a budget is to set a concrete, measurable goal for what you want to achieve in the next year. For example, your goal could be “to sell 10 more units.” Come December 31st, it is easy to evaluate whether you’ve hit that goal because it is specific and easily measurable.  On the other hand, a goal like “to sell a lot of units” is subjective and thus harder to evaluate. If you struggle to identify a goal, you can start by setting a long-term goal and time-frame (such as having 100 units in 3 years) and then work backwards to calculate what you will need to do in the next year to be in position to hit your long-term goal.  

Once you’ve determined how many franchises you want to sell, you need to assign an assumed marketing cost per unit. You can do this in two principal ways:

• Divide your marketing budget from last year by how many units you sold. This method is likely to be most accurate unless something significant has changed in your business. Unfortunately, this option may be off-limits if you don’t have historical data to use (say, your brand is a new concept).
• Use an average marketing cost per unit specific to your industry. FranConnect offers a wealth of information on this in their Franchise Sales Index Report.

Be realistic in what a reasonable marketing cost per unit (MCU) is — you won’t do yourself any favors by picking an artificially low number and then missing your goal as a result. If you’re expecting your MCU to plummet from previous years, you need to have concrete reasoning for that assumption or your whole budget will be thrown off.  

Once you’ve landed on a target number of units and your MCU, multiply the two to calculate your annual franchise development marketing budget. If the result is larger than you bargained for, you can do one of two things: (1) reallocate resources in your larger budget to make your FD marketing budget work; or (2) lower your goal. Reflect before adjusting the MCU since this tends to be wishful thinking rather than an executable plan for success. 

After you’ve finalized your budget number, the next step is to determine how you’ll get the most bang for your buck. What has worked well in previous years? What was a flop? Look at what you spent previous years’ budgets on and survey existing franchisees to see what moved the needle on their purchases. If you’re really at a loss with where to start, consider having a franchise assessment performed in order to give you the blueprint you need to maximize your budget. Once you have an idea of what you need, investigate whether an agency, freelancer or in-house employee will best fit your needs and collect bids so you have transparency into how far your money will go.