By Joe Mathews, CEO of Franchise Performance Group
and Keith Gerson, President and Chief Customer Advocate of FranConnect
A total of 487 franchisors use FranConnect’s Franchise Sales Management Module as their CRM to track their franchise sales results, far more than any other franchise sales database or CRM utilized in franchising. Inside that centralized database is a jackpot of information which, when aggregated, provides a robust look at what is really occurring in franchise sales.
Keith Gerson, President and Chief Customer Advocate of FranConnect, recently aggregated the 2016 data in preparation for a comprehensive report on franchise sales, which will soon be introduced through a series of events, webinars and analytic reports. Gerson kicked the data to FPG for analysis, publication and distribution.
The data shows that in 2016, franchisors utilizing the FranConnect system reported signing 5,892 new franchisees. FPG and research firm Frandata estimate that in any given year, 14,000 to 20,000 people invest in new franchises. So, FranConnect’s sample size represents an estimated 30% of total new-deal flow in 2016, which we believe is the largest sample size ever reported.
Here is what we learned.
1. The 1% Rule is Still in Effect
The franchisors surveyed in 2016 generated 491,383 leads, resulting in 5,892 buyers, or a 1.2% lead-to-close ratio. Therefore, out of every 100 people inquiring into investing in a franchise, approximately 1 moves forward. Franchising has been stuck around a 1% lead-to-close ratio throughout my 30-plus year career in franchise development.
Is this 1% like gravity, something franchising should just accept because we are powerless to change it? Or is this 1% a monumental, perennial franchise industry failure that franchising has simply learned to accept without feeling the need to transform it?
FPG thinks the 1% rule is indicative of several contributing factors:
- Lack of an effective franchise development lead generation disruptor model (like Realtor.com for residential real estate).
- Franchisee recruiters as a general community are ineffective in their roles. Top producers crush the “1%” statistics and outproduce their peer group by 200% to 300%.
- Hobbyists artificially inflate the leads. Some people watch birds for a hobby. Others collect stamps. We estimate 1 million to 2 million people per year watch franchising but aren’t buyers.
2. Your Franchise Opportunity Site Closes or Kills Deals
Out of the 5,892 documented franchisees who invested in a franchise, 2,535, or 43%, inquired through the franchisor’s franchise development website. Often, franchise candidates land on a website through other streams of content, such as online searches, PPC, social media, blogs, franchise development PR, cross-over from the consumer site and other referrals. This does not mean the site is the SOURCE of all deals. However, it does mean almost half of the buyers use the website as a screening tool to determine if the franchisor is worthy of a deep dive. Franchise candidates are qualifying franchisors before franchisors are qualifying franchise candidates. Nearly half of the franchise buyers determined if the brand was worthy of investigation based on what they read and watched on the site.
A franchisor’s content and digital marketing strategy, which would include a state-of-the-art franchise opportunity website, is the franchisor’s best opportunity to attract high-quality franchisees. But too often franchisors make the common mistake of having a PPC vendor, social media company, PR firm, website designer and other vendors who operate in individual silos and aren’t working under a cohesive, integrated tactical plan. If you have multiple people telling your brand story, you run the risk of telling different versions of the story, confusing the candidate and possibly losing a buyer.
At FPG’s digital agency, for instance, we keep SEO, blogging, website design, social media marketing and lead-generation and lead-nurturing content under one roof. That ensures consistency and continuity of the franchisor’s story, a focus on key value drivers and a tight tactical franchise buyer generation plan. We encourage all franchisors to work with a skilled agency that takes an integrated approach.
Franchisors need to look beyond the website as a lead generation tool and start looking at it as the first step in their overall franchisee recruitment process. If you wouldn’t have your PR guy or your ad agency work your leads, then don’t hire them to write and design your website content, either. Candidates don’t go to the website to get pitched, preached at or sold. They go to the website to get reasonably informed. They will leave the website if they can’t find content they can trust, and they’ll find another franchisor whose content they can trust.
FPG recently designed and launched a franchise opportunity website for a large homecare franchise. Engaged visitors, those who spend more than five minutes on the site, increased 50%. These are the potential buyers. When FPG designs a franchise opportunity website, we aren’t designing it to specifically increase leads (although this is often the case), we’re designing it to engage buyers.
3. Lead Generation is Easy. Franchise Buyer Generation… That’s a Different Story.
Franchisors have no problem generating leads. FranConnect counted almost 500,000 leads generated by 487 companies in 2016. If 14,000 to 20,000 people who invest in franchises each year represent 1% of those who inquire, that means there are a total of 1.4 million to 2 million leads each year. Franchisors need leads like they need a finger in the eye. What they really need are franchise buyers.
4. Finding the Needle in the Haystack
Out of the 5,892 deals signed, 26%, or 1,529, came through the portal community. However, portals generated a little over half of total leads — 255,803 of the 491,383 total leads. When portal leads are stripped out of the equation, the lead-to-close ratio for all other sources averages 1.85%, while the average from the portals comes to .60%. That means leads from non-portal sources are 300% more effective. However, accounting for pure deal flow, franchise buyers are frequenting portals.
Joe Mathews believes portals are necessary, but he thinks they cast too wide a net. Mathews says, “When franchisors tell portals, ‘I need more leads,’ they hear, ‘I need more leads.’ They miss the real communication, which is, ‘I need more qualified franchise buyers.’ Portals appear to design their systems around capturing contact information rather than nurturing, educating and engaging franchise buyers (like Realtor.com does for residential real estate purchasers).
Mathews recalls, “Several years ago, I had an honest conversation with the leader of one of the top franchise portals. He told me, ‘I am not in the lead-generation business. I am in the contact-information capturing business. Franchisors need to be in the lead-generation business.’ I told him, ‘You should tell franchisors what business you are in. They don’t know this.'” This portal had a lead-to-close ratio of .20%, worst among the portals in both lead-to-close and total deal flow.
5. Brokers are Still Effective, but Change is Coming…
Franchise brokerage is a low-barriers-to-entry business, meaning it’s easy to get started and many people can participate. If you want to become a franchise broker, you don’t need certification, training or much money to get started. Franchise brokers appear to be popping up everywhere. Keep in mind that the number of people who invest in a franchise is static. Joe Mathews believes the franchise brokerage industry has far more supply than franchise buyer demand, meaning an inevitable disruption will occur. Mathews says, “As in any business, the market will always reward the best, such as top brokers in FranNet, FranChoice and The Entrepreneur’s Source. However, franchisors should pay careful attention to what new brokers are telling candidates.” Mathews warns, “As brokers become desperate for deal flow, franchisors will run an increased risk of illegal representations by these brokers.”
6. Ask for Referrals
Of the total number of franchise buyers, 1,144 were referred to the franchisor from a presumably trusted source, for a 3.46% lead-to-close ratio, tops on the list. This is a good sign for franchising. As Millennials start investing in franchising, think about how they network. Their networks are larger, flatter and more virtual than the 40- and 50-somethings who invest in a franchise today. Referrals will include content they read in their social media news feeds, videos sent by friends and colleagues and online groups they participate in. Franchisors who are adept at creating their own content and telling their story in a transparent and compelling way will find their way into these networks. Keep in mind this will not require a big budget, just a worthy brand with a compelling story to tell. Content and referrals are rapidly becoming inseparably linked.
7. Trade Shows and Conferences
Trade shows and conferences were the lowest among deal-flow sources, with 306 deals reported last year. Keep in mind there is a huge time commitment on top of the overall cost to attend. Should franchisors invest in these shows and conferences? They should take a hard look at their ROI on those trips as franchisors often stay in the market for several more days to set up meetings. If portals get their act together and franchisors become more diligent in asking for referrals and more skilled in telling their own stories, there may not be any need for trade shows.
2017 Predictions
Joe Mathews says: This year will be more of the same. Smart franchisors will start taking matters into their own hands and become more skilled at generating their own leads and managing budgets. Competition for buyer leads will increase among brokers. Portals will continue to supply franchisors with contact information, leaving franchisors to find the needle in the haystack. Franchisors will eventually create a breakthrough in franchise buyer generation using social media. Franchise opportunity shows will become increasingly less relevant.
Keith Gerson says: Based on data and insights that have not previously been available, franchisors will recognize that their organizations have been highly siloed and will begin to proactively track leading indicators such as response to lead times, open/read rates from franchise sales campaigns, ROI costs associated with lead generation efforts, etc.
This will be the year in which more efforts will be made toward a hyper-local approach to lead generation. Localized Google AdWord PPC campaigns will be employed more often in lead generation. Newer technologies such as geo-fencing will be utilized to target leads, allowing franchisors to take lead generation opportunities into their own hands. Live Facebook streaming will be used to convey a brand’s culture, which will drive more brand exposure. Campaigns that are associated with each step of the sales process will include more videos such as franchisee validation, which in turn also drives SEO.
Unfortunately, I’m concerned about the continuation of historic trends toward ineffective tracking of advertising expenditures, and all too many franchisors will be in the dark in terms of what’s truly working in their marketing efforts. This information is critical for knowing what to feed and what to starve in terms of marketing expenditures. This will remain symptomatic of the fact that many franchise organizations fund their consumer marketing departments from ad fund expenditures, and that the marketing departments are obliged to spend much of their time on end-consumer marketing. Therefore, many franchise departments will continue to operate without a franchise sales strategic plan, and will be on their own for the creation of content and the knowledge or budgets to tap into more innovative marketing opportunities that are available.
Joe Mathews, founder of Franchise Performance Group, has more than 30 years of experience with such national chains as Subway, Blimpie, MotoPhoto and Entrepreneur’s Source. He is a regular presenter at IFA conferences, and has served as an instructor with the ICFE (Institute of Certified Franchise Executives). Joe is considered one of the top franchisee recruitment strategists. He is author/co-author of four books: Street Smart Franchising, Franchise Sales Tipping Point, Developing Peak Performing Franchisees and How to Create a Franchise Sales Breakthrough. Guaranteed.
About FPG
FPG is the leading franchisee recruitment consulting firm. We specialize in helping franchisors create a breakthrough in franchisee recruitment results. Our purpose is to help franchisors build worthy, iconic American brands. Along the way, FPG strives to be a leading educator, advocate and promoter of excellence in franchising.
Keith Gerson brings 40-plus years of executive-level expertise as a passionate and driven franchisor and franchisee with a proven track record in building rapid-growth, highly profitable franchise organizations. Over the last five years, Keith has served as President and Chief Customer Advocate for FranConnect. His focus is on helping franchisors reach their desired goals in sales, operations, communications and engagement. He is a highly rated key-note speaker and has created several leading franchise systems from conception through launch and sustained growth, taking these systems to successful enterprise-level brands.
About FranConnect
FranConnect provides proven franchise management software to more than 600 brands and 110,000 franchisees including multi-unit operators and area developers. The company’s customers rely on FranConnect to grow the number of units and make them more successful. Only FranConnect comes with Franchising Built-In™ – exclusive functionality and best practices for the entire franchise lifecycle – so franchisors can more effectively manage, track, and run their business. For more information about FranConnect, visit www.franconnect.com .