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Franchise Development Report:

Highlights From The 2015 AFDR
By: Eddy Goldberg -Franchising.com

In the following months, FUSR will present highlights from the 2015 Annual Franchise Development Report (AFDR). The report is based on responses from 139 franchisors representing 36,313 units (32,693 franchised and 3,620 company-owned). This week: Top Sales Producers and Top Internet Sales Producers.

Top sales producers: The Internet - holding steady at 42 percent since 2012 - continues to dominate as the number-one source for franchise sales. Referrals remained second at 30 percent, basically identical with the three previous years.

Brokers, at 16 percent, also held steady over the 5-year period. One encouraging sign: "Other," at 6 percent, is about one-third of what it was in 2010 and 2011, hopefully indicating that franchisors are doing a better job of tracking where their sales come from.

Top Internet sales producers: The Internet accounted for about 4 of every 10 sales among respondents. Breaking down Internet sales by category, the biggest change from last year is the 50 percent decline in sales attributed to SEO (24 percent in 2014, compared with 49 percent in 2013).

Sales from online ad portals, which fell significantly in 2013 (to 23 percent from 43 percent in 2012), bounced back to 35 percent in 2014. Possible reasons include better performance by portal operators, better communication from and collaboration with franchise sales departments, and changes in how prospects search for brands.

Pay-per click, at 15 percent in 2014, more than doubled from 6 percent in 2013, reaching its highest percentage in 5 years.



Mixed Bag: Highlights From The 2014 AFDR
By: Eddy Goldberg -Franchising.com

The findings from the 2014 Annual Franchise Development Report (AFDR) were unveiled this October at the 15th annual Franchise Leadership & Development Conference in Atlanta. In keeping with past years, Steve Olson, president of Franchise Update Media Group, presented the findings during the first general session of the conference. This year he was joined by Conference Chair Tom Wood, president of Floor Coverings International, and Greg Vojnovich, chief development officer at Popeyes Louisiana Kitchen for a discussion of the results.

This year's AFDR is based on responses from 101 franchisors representing 34,509 units (31,047 franchised and 3,462 company-owned). The participants were franchisors who pre-registered for the conference and completed an in-depth survey online in advance. Their responses were analyzed to provide an in-depth look into the recruitment and development practices, budgets, and strategies of a wide cross-section of franchisors. In sum, the data, with accompanying analysis, provide the basis of the 2014 AFDR.

Growth plans for 2014 from the 101 franchisors target a total of 4,057 additional units from 2,526 franchisees. Last year, 106 franchisors aimed for 4,675 new units from 3,095 franchisees; and in 2012, 110 franchisors sought 8,262 new franchise units and 4,441 new franchisees. Overall, respondents said the top five most important factors in franchise development success were, in order of importance:
  1. Franchisee Validation
  2. Unit Economics
  3. Quality Leads
  4. Sales Person
  5. Sales Process
Below are highlights from the upcoming 2014 AFDR

Recruitment budgets: Both average and median recruitment budgets for 2014 ($201,817 and $120,000, respectively) are down slightly from the previous year, although each is higher than in 2010 and 2011, and not significantly different from 2012 ($197,000 average, $125,000 median) and 2013 ($208,625 average, $125,000 median). This likely reflects the slow, steady post-recession shift from a focus on tightening operations to a cautious crawl back toward more of an emphasis on system growth.

Where the money goes: No major changes here--which might itself be considered surprising with all the noise about social media. Overall, the distribution of development spending has remained fairly constant over the past 5-plus years. Internet spending by respondents actually peaked in 2010 at 50 percent, gradually declining to 45 percent predicted for 2014. Planned spending for 2014--print at 15 percent, trade shows at 16 percent, public relations at 12 percent, and "other" also at 12 percent--pretty much mirrors spending in previous years, with just a minor uptick for trade shows.

Top sales producers: No major changes from last year here either. The Internet (at 42 percent) continues to dominate as the top source for franchise sales, identical with last year. Referrals were second (at 31 percent) down a point from 2012. Brokers (at 17 percent) up 1 point from last year and Other (at 10 percent) up 3 percent from last year, accounted for the remainder of franchise sales in 2013.

Top Internet sales producers: As noted above, the Internet accounted for about 4 of every 10 sales. Breaking it down by category, the biggest change from last year is the increase in sales from SEO (31 percent in 2012 to 49 percent in 2013), largely at the expense of online ad portals, which fell from 43 percent in 2012 to 28 percent in 2013. Pay-per click as a sales producer has yo-yo'd in the 5 to 10 percent range over the past four years (11 percent in 2010, 5 percent in 2011, zero in 2012, and 6 percent in 2013).

Brokers: While fewer franchisors reported using brokers in the past 2 years (44 and 48 percent in in 2012 and 2013, respectively, compared with 57 and 56 percent in 2010 and 2011), the percentage who are closing deals through brokers has risen in the past two years, significantly so in 2013. In both 2010 and 2011, 67 percent of those using brokers closed deals through them; that figure rose to 70 percent in 2012, and jumped to 90 percent in 2013. The median broker compensation of $13,500 among this group was level with 2012, falling from $15,000 in both 2010 and 2011. However, said Wood, "The starting point is $20,000 or higher to do deals."

One-to-one marketing: Calling this "today's newest recruiting source" for franchisors, Olson reported that 36 of the 101 franchisors surveyed have used one-to-one local marketing to recruit franchisees. "Twenty-two, or 61 percent of those franchisors have generated sales" using this strategy, he said.

Referrals: Again, no significant change here in the number of respondents using this relatively low-cost method of recruiting leads (59 percent, compared with 58 percent last year) and those providing incentives to franchisees who refer prospects that result in sales (60 percent this year, 61 percent last year). The median referral fee, however, rose significantly, from $3,500 last year to $4,500 this year; and 15 percent said they pay $10,000 or more for successful referrals, most likely reflecting franchisors' increasing appreciation of the value of referrals in making new sales.

Social media sales: The number of franchise sales from social media sources has steadily increased over the years and is certain to continue. Fifteen of this year's respondents reported making 123 sales through social media, nearly tripling last year's total of 46 sales through social media sources by 14 companies. This year's numbers break down as follows: 52 through blogging; 49 through LinkedIn; 10 through Facebook; 7 through Craigslist; and 5 through YouTube.

Overall closing ratios: Something's getting better here. While the numbers for 2013 matched those of the previous year exactly--leads to sales at 2 percent, applications to sales at 13.5 percent, and discovery days to sales at 75 percent--they were up significantly from 2010 and 2011. Clearly franchisors are making more of their opportunities, but it could also be they are choosing candidates more effectively.

Profiling tools: Improved profiling tools, as well as better use of them, also contributed to the increase in closing ratios: two out three (68 percent) of franchisors said their use of profiling tools has helped to increase the quality of their new franchisees, up from 48 percent last year, and 20 to 30 percent in previous years. One in five (19 percent) said they are using profiling tools but don't yet know if that is improving the quality of their candidates; and one in seven (13 percent) said profiling tools have not done so.

Measuring costs: Tracking costs for lead generation and cost per sale has been a sore point for years--as in, why don't more franchisors do it? The news this year showed slight improvement, with 72 percent of respondents tracking their cost per lead, up from 69 percent the year before. Sixty percent tracked cost per sale, down from 65 percent the previous year. That means 3 out of 10 respondents still don't track cost per lead, and 4 out of 10 don't track cost per sale, the all-important measure for franchise system growth. The median cost per lead of $55 rose $5 from the previous year, but is still lower than the $60 reported the year before that. The median cost per sale was $8,000, down significantly from $9,452 last year.

Mobile prospect explosion: It should come as no surprise that more prospects are using their mobile devices to research and contact franchise brands. According to Landmark Interactive, that number nearly doubled from August 2012 to August 2013, rising from 18 percent (10 percent phones, 8 percent tablets in 2012) to 36 percent (23 percent phones, 12 percent tablets in 2013). Desktop usage in this area dropped from 83 percent in 2012 to 65 percent this year. "There is a huge movement toward mobile," said Olson, adding that the financial qualifications of mobile users are higher than for those using desktops to research franchise brands. The message clearly is that franchisors must adapt their website franchise development sites to these mobile devices.For ordering information on the 2014 Annual Franchise Development Report. Click here.

Other Key Findings

Communicating "on the go" is exploding: The percentage of prospects using mobile phones to research franchisors more than doubled from the previous year. Franchisors must adapt their technology to handle the growing use of cellular devices and tablets or be at a competitive disadvantage.

Social media is for more than just finding friends: An estimated 87 percent of franchisors have a Facebook link on their website, and 73 percent have a Google+ corporate page. However, franchisors still must learn how to use social media better to make it work as part of their development strategy.

Profiling tools are powerful: Two out of 3 (68 percent) of franchisors believe profiling tools increase the quality of new franchisees. "Who you know" still rules. When it comes to getting the deal done, 6 in 10 (59 percent)d of franchisors say referrals have the highest close ratio of all lead generation sources.

Some good news: Franchisors are working harder to align the efforts of their various departments. Olson says research shows that franchisors are "breaking down the silos" to come together as a unit to build a better overall system.

"There is lots of reciprocity between all the disciplines in the company," says Olson. He also recommended leadership at the top must continue to identify performance gaps and make sure they are monitoring and hiring the right sales people.

Looking ahead, the franchisors who are most successful in exceeding their goals will continue to be the brands that use multiple sources--and use them well--to promote their brand. Those who don't should heed this cautionary note from Tom Wood: "The stronger franchisors are going to eat your lunch." By: Helen Bond



Highlights from the 2012 Annual Franchise Development Report
By: Eddy Goldberg

Last month we published a high-level overview of the 2012 Annual Franchise Development Report (AFDR). The following is a selection of some of the many in-depth findings from the report.

Recruitment budgets. In one of the more interesting changes from the past two years when median recruitment budgets dropped from $88,000 in 2010 to $80,000 in 2011 and 2012 median recruitment budgets are $125,000, an increase of more than 50 percent. That number, however, is still below the $138,000 medians of 2008 and 2009. Franchisors have recognized the changes, says Steve Olson, president of Franchise Update Media Group. To grow again franchisors have to invest again in lead generation and in improving the efficiency of their sales process.

Where the money goes. Internet spending, which held steady in the 47 to 50 percent range from 2008 through 2011, is projected to fall to 40 percent in 2012. Spending on print (17 percent) and trade shows (14 percent) has remained fairly steady since 2008, and is expected to remain so in 2012. One change: public relations spending is budgeted at 15 percent for 2012, up from 10 percent in 2011 and 11 percent in 2010. Other, at 14 percent, has risen steadily in the past 5 years, most likely from increased spending on social media and optimization of franchisor own websites.

Internet spending. The most notable shift here is the decline in spending for online ad portals, which fell from 61 percent of responders in 2010 to 51 percent this year; 2012 projections are about the same, at 50 percent. Spending on search engine optimization (SEO), after rising from 18 percent in 2010 to 24 percent last year, is budgeted to fall slightly in 2012 to 21 percent. Pay-per-click spending, at 15 percent and 14 percent in 2010 and 2011, respectively, is expected to climb to 19 percent this year. Spending for social networking is expected to remain at 2011's level of 10 percent, up from 6 percent in 2010.

Top sales producers. For the first time since 2007, the Internet was not the top lead producer, falling to second place (30 percent), just behind referrals at 31 percent. Sales produced through external Internet sources have fallen steadily from the 41 percent level recorded in 2007. Referrals, which produced 37 percent of sales in 2007, dwindled to 25 percent in 2010 before rebounding to 31 percent this year. Broker sales remained steady at 17 percent for three consecutive years. In a puzzling development, especially in an era of improved metrics and technology tools to track sales sources, the Other category has risen steadily from 4 percent in 2007 to 20 percent in 2011. In other words, one in five respondents either doesn't know where sales are coming from, or the choices of Internet, referrals, brokers, and print did not apply; or perhaps more sales are coming from franchisors own websites, thanks to improved SEO.

Top Internet sales producers. In terms of sales (versus spending), for the first time ever, SEO topped the list at 34 percent in 2011, up from 28 percent in 2010. That's good, says Olson. SEO should be the top sales tool for franchisors, especially with the increasing use of Google Analytics. All roads lead to your website. One strong indicator that franchisors have improved at tracking the results of their Internet spend: the Don't Know category fell significantly from the previous year, dropping from 24 percent to just 7 percent in 2011. Online ad portals, at 32 percent in 2011, were down from 35 percent in 2010, but still ranked near the top. Pay-per-click and social media provided the lowest return, but while PPC dropped from 11 percent to 5 percent from 2010 to 2011, social networking rose from 2 percent to 5 percent.

Online alternative resources. One important trend to note here, says Olson, is that this category is beginning to produce more sales. Selling franchises through social media platforms still ranks quite low on the totem pole in terms of total sales, but the numbers are climbing as franchisors learn to use these new channels. In 2011, 90 of the 110 respondents (82 percent) placed online ads, videos, or press releases on social or business networks, blogs, YouTube, Craigslist, etc., compared with 58 of 126 respondents (46 percent) in 2010. In 2011, 13 of 110 franchisors (12 percent) reported sales from social media, compared with only 5 of 126 (4 percent) the previous year. Olson says franchisors should continue experimenting with social media as a sales tool, integrating it into their overall sales strategy.



2010 Annual Franchise Development Report
February 2010 Franchising World

The 2010 Annual Franchise Development Report has recently been released by Franchise Update Media Group. It highlights the latest trends and recruitment intelligence in franchising. Participants represented 38,800 units and plan to add 5,360 more franchise units through this year. This is the only sales and lead generation benchmark report available in the industry and features annual development results from up to 150 active franchise organizations.

According to Steve Olson, publisher, “Online ad portals and referrals continue to be the top sales producers, followed by brokers, print, franchise shows and PR. Search engine optimization (SEO) is paying off, but be aware that pay-per-click (PPC)typically produces the lowest return for online dollars invested. Also, don’t get excited about social media for recruitment, as franchisors are still generating very minimal sales. It’s working on the retail side, but we’re not there yet on the franchise sales side.”

The survey also reveals that over half of the respondents have reduced start-up costs in the past 12 months. Olson adds, “In response to current economic conditions, the initial investment requirements have experienced the biggest reduction, followed by lower franchise fees and royalties, as well as other cost reductions.” In addition, 65 percent of companies surveyed now provide referral incentives, a 71 percent increase over the 2009 report findings.

The AFDR research is designed to help franchisors save thousands of dollars in development costs. It provides benchmarks for particular industry categories, investment levels, and recruitment budgets; delivers marketing costs and sales compensation information; reports the top-producing sales and lead sources; reveals performance evaluations of franchise Web sites and follow-up to prospect inquiries; and analyzes current and historic industry growth trends.

“This year’s report shows that the smart franchise organizations are watching lead-generation and sales trends, making adjustments, and continuing to thrive even in this tough economy,” Olson said.








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