Franchise Goal Setting Part 3: How to Set Up A Budget for Franchise Sales

Franchisors are responsible for determining a suitable budget to spend each year on generating leads and bringing prospects through the sales funnel. But how do executives know what price tag to put on franchise development?

Franchise Update Media’s 2019 Annual Franchise Development Report (AFDR) found that the average recruitment budget for franchises is $186,000 for an additional 20 units annually. That comes out to $15,500 per month, or $126 per lead and $8,984 per completed sale, on average. 

However, that is just an average. The number can be higher or lower depending on a long list of factors about each specific business. 

Breaking Down Recruitment Budget

By crunching numbers, franchisors come up with a valuation of what the brand should spend on unit development. Look at company data to determine the dividends from a single franchise unit, and determine how much should be spent on securing that sale based on the leads-to-close ratio. Then, multiply that number by the number of units the brand hopes to scale within a calendar year. The result is what the franchise’s total yearly sales budget should roughly be. 

Once how much to spend on development annually has been identified, the brand then has to figure out how to divide the budget between different channels to increase exposure to potential candidates.

Create A Compelling Development Site 

A franchise development website is one of the top opportunities a brand has to market its business model and available territories well. On the site, information about the opportunity should be clearly displayed, the brand voice should be concise and there should be a direct call to action pointing individuals to reach out for further details. 

The AFDR found that franchise organizations, on average, spend 14% of their sales budgets on their development website. This includes costs for the host, a site moderator, SEO-focused content and more.

Develop A Strong Social Strategy 

Having a good social advertising strategy is becoming more and more of a necessity for brands to stay in touch with leads. Digital marketing takes the largest piece of the franchise sales budget pie by far, at an average of 32% of the total spending, the AFDR shows.

This includes posting about the opportunity and advertising openings via avenues like franchise opportunity sites (which most brands spend an average of $24,000–$28,000 on yearly), pay-per-click ads ($24,000–$30,000 annually on average), email marketing, social networking and ads ($10,000–$15,000 per year on average), target trailing and more. 

Hire a Franchise Brokers/Consultants

Brokers are another way to bring awareness about franchising opportunities and have a skilled sales partner on your side. Many franchises hire brokers and consultants to bring more leads to the business, with great success.

FranConnect data shows that brokers are actually the top driver of franchise sales: they brought in 21% of all closed deals and have the highest closing effectiveness rate of 5.3%. Franchise brokers have an average ratio of 20 leads per sale, which is great for business and alleviates some pressure for development teams. 

Invest in a Strong Discovery Day 

Lastly, some of the budget needs to be allocated toward the end of the sales funnel. Not all the work is done just by catching an interested party’s attention and connecting with them. Franchisors need to ensure that the brand looks strong from all angles of the due diligence process, and a big part of that is the Discovery Day. 

Discovery Days can be a “make or break” deciding factor for potential franchisee candidates. If they do not receive a good impression or leave feeling they were given a comprehensive overview of the opportunity, they won’t be sold. The AFDR shows that 71% of applicants who go through a Discovery Day process end up signing with that brand.