Why Using Data to Drive Your Franchise Development and Marketing Budgets Will Make or Break Your Brand

“In the franchise marketing space, there’s a lot of data to be had—and with that, a lot of ways to waste money,” Zack Pike said matter-of-factly. As Vice President of Data Strategy and Marketing Analytics for Lawrence, Kansas-based Callahan Agency, Pike’s role is centered on making sure brands take advantage of the data at their disposal to uncover insights that reveal opportunities and inform strategy, and ultimately, making sure that money-wasting part doesn’t happen. 

The conundrum franchisors have long faced is not only where to find the data that allows them to accurately assess the success of their system, but how to use all available data to determine how to allocate their budget most effectively. Though data-driven decision-making currently holds undeniable importance in the franchising industry today, it didn’t always—and no one knows this better than FRANdata CEO Darrell Johnson. 

Johnson has been at the helm of the franchise market research and data analysis firm for 15 years, collecting data to derive key insights about the franchising industry at large from the inner workings of more than 5,000 franchise brands and 8,800 lenders. As he continues to watch the industry evolve to embrace data, Johnson said he’s noticed three fundamental factors influence this evolution.

“First, regardless of sector, every franchisor has the same 11 responsibilities, from recruitment on the front end to compliance on the back end. In between are internal functions, like support, and external functions, such as marketing,” Johnson said. “Second, every franchisor’s management team—and its owners—want to understand how they are performing relative to the competition. Third, advances in data collection and technology over the last few decades have allowed us to perform this analysis more efficiently, resulting in a collectively stronger ability to define what good, better and best looks like across functions and systems.”

Regardless of size or capital, all brands experience budget constraints in some form or another. And with these three fundamental factors in mind, it stands to reason that exploring all available ways to spend smarter is one everyone’s agenda—yet many franchise brands fail to put the data at their disposal to proper use. One clear area where franchisors are dropping the ball? Unit-level data collection, according to Pike.

“Where we see the biggest benefit in data collection is at the individual location-level because not every unit responds to marketing the same,” Pike said. “They all react a little differently, whether due to weather, management, or anything, really. Whenever possible, we encourage clients to use data at the individual store level and work from that perspective up. It’s different than the way most businesses do things, but it tends to be the better approach.”

Implementing data collection initiatives at the unit-level, Pike argued, allows brands to actually understand the nuances of every store and why they perform differently from one another. From there, segments can start to surface—brands have more relevant information that, for example, may reveal 10 different store personas across 500 units. 

“Once you have data at that level of your business and a handle on what's going on in your system, you can decide how to allocate dollars effectively,” Pike said. “Most brands have a set budget that is spent evenly across all franchisees because everyone has to be treated equally, but we've found that it is not efficient. If store 1 sees a 3:1 ROI, but store 400 sees a 1:1 ROI, those two numbers alone mean spending the same across an entire system isn’t wise because one is inefficient.”

Johnson posed a similar hypothetical: “As a franchisor, I may say that because I added 15 franchisees to my system last year, this year I want to add 20. As an advisor, I’d say that number is arbitrary and doesn’t account for the rapidly changing environment in which franchising operates,” he said. “Franchisors should ask themselves, ‘How do we make a better decision? What is the right business plan to put into place? How do we look at the information available to us differently so it leads us to a better outcome?”

Achieving better outcomes is at the core of approaching business with an analytical mindset, and both experts proposed a few suggestions for how franchisors can use data to arrive at their ideal outcome and spend more effectively in the process. 

According to Pike, better outcomes—and effective spending—can be achieved by data collection via two different strategies: Upfront analysis before ever spending a dollar, or testing. 

“Testing is something marketers don't do enough; everyone shies away from trial and error,” Pike said. “Putting money at risk to try something and see if it’s effective or how to make it better over time is a great data-collection method. Unfortunately, testing isn't easy or cheap, but it is the single best way to figure out what works and doesn't.”

Johnson’s perspective on utilizing data to drive franchise development spend also emphasizes assessing the outcome of a given plan to effectively modify based off of these learnings to achieve better results. 

“Look at the number of units your brand opened last year. How long did it take to break even?” Johnson asked. “Take this information, including economic forecasts, and look at your target prospect. Here is where data comes into play: If you’re properly assessing the environment in which you’re asking new owners to perform based on previous rates and future climate, you’re now equipped to put a plan into action. And when executing, dig into the consequences of your plan to prepare for the future. All of these connecting dots should influence your overall strategy.”

Because there’s more competition inside (and outside) of the franchise space than ever, and now, more pressure on expenses as the economy slows, finding a way to effectively grow and remain profitable is a challenge that is facing every franchise brand. Such is the reason that running a brand based on intuitive feel or simply by doing what was done last year plus or minus 10% won’t cut it—brands need to be nimble and pursue specific channels that they can ensure are producing measurable results. 

As far as where there’s the most opportunity for brands to harness data to help dictate future budget allocation, “The more targeted a channel can be, the better,” Pike said. “The things you can do in a channel like Facebook is something that can drive benefit for a gigantic franchisor and a single-unit franchisee alike. It really does level the playing field. Unless their footprint is massive, we push our clients to use more targeted mechanisms initially, then work up to traditional mediums like TV and radio.” 

There's no franchisor out there operating in a vacuum as it relates to lead generation and marketing, and the targeting capability of how a dollar is being spent is continuing to get better and smarter by the day. 

“Leveraging data better than we are today is what will propel brands toward the future,” Pike said. “No matter who I talk to, no one is doing what they should. The focus needs to be on how you can best be driving strategy on the front end with data—as people realize data is more than just a measurement, you'll start to see more of that happening. We think of using data on the back end to measure, but the real benefit comes from using it before ever spending a dollar.”

As money gets tighter, using data-driven decision-making to drive budget allocation will be the deciding factor in whether a brand has the systems and structure to survive an economic downturn or not. Where will your brand be?