The Rising Cost to Grow Franchise Networks

[This was first published in the BizCom LinkedIn Newsletter on Oct. 22, 2024.]

It’s billed as one of the best gatherings of franchise development leaders in the country. It has been going strong for 25 years. And the data is something to behold.

I’m talking about the Franchise Leadership and Development Conference (FLDC). Or, as I like to think of it, the Fertile Leads Demanding Conversion event.

There’s no doubt that franchising is a growing concern. The economic forecast that FRANdata and the International Franchise Association puts out each year shows that brands are expanding. An estimated 15,000 new units will be added to franchise networks in 2024 alone.

The marketing budgets to attract, qualify and secure those new units, however, are a different story. That’s where the rubber meets the road at the FLDC. And the reality is there’s no such thing as doing more with less in today’s environment.

Bigger budgets define bigger growth in ‘25.

As if we haven’t felt enough inflation in this economy, franchise development budgets are proving no different. The status quo is in fact not the status quo.

Diane Phibbs, of Franchise Update Media, shared from the main stage that franchise development budgets will increase a minimum of 13% just to seek the same target growth from this year. In short, it will take a larger franchise development investment at the very least to achieve the same outcome.

In addition, according to the 2025 Annual Franchise Development Report from Franchise Update, that will be the trend for the foreseeable future. In plain English, in order to grow your franchise network, be prepared to grow your fran dev budget.

Some 59% of those surveyed in the AFDR will allocate a higher budget in 2025 over 2024.

With a median goal to sign 30 franchise agreements next year, an estimated 45% of franchisors plan to outline their budgets this November. Overall, some $200K will go towards media (digital advertising, traditional advertising, PR, video and trade shows) and another $100K will go towards brokers.

As for ROI with those investments, the cost per sale of non-broker deals is currently averaging $8,426, while the cost per sale of broker deals is $27,000.

But don’t be discouraged by the dollar signs required for ambitious expansion. Because, if the message from the main stage at FLDC was heard, franchise development programs are sitting on top of two existing opportunities for growth: current leads and current franchisees. They just need to act.

The A+ opportunity for failing fran dev practices.

Raise your hand if you’ve heard this one. “We need more leads.”

Really? Because according to the data at FLDC, half of all existing leads already fall by the wayside.

A staggering 50% of franchise development leads don’t get a call back. That’s money spent for doing nothing in response. No call. No text. No email. Zilch.

Looking at this another way, the average cost per (non-broker) lead is now $134. How much of that is wasted money when half don’t even get a reply?

In 2023, I had a franchise consultant network inform me that an umbrella company on my roster under a new CEO and a new franchise development leader wasn’t responding for days to territory checks from interested candidates. How fast do you think those consultants moved on to another zor who could? Others were answering within two hours.

Needless to say, that client later informed me it could not afford our agency’s services in 2024. It hasn’t effectively grown this year either.

As Thomas Jefferson famously said, “Never put off until tomorrow what you can do today.”

If there’s any sense of urgency to expand a franchise network, my first recommendation is: call your leads. If you don’t, your competitor will.

Referral programs need a lot more love.

Perhaps my greatest takeaway from FLDC, however, is also my all-time favorite tool in the fran dev toolbox. Happy franchisees.

This is the golden goose. And too many franchisors award a giant goose egg for their help.

Great franchise owners are showcased in video testimonials, powerful digital ads for validation, and media interviews resulting in great publicity. After all, nothing communicates a strong franchise opportunity to a potential investor better than a successful franchisee living the dream.

From one perspective, they are a valued messenger. One that franchisors expect to pony up for more. In fact, programs and budgets exist to get current franchisees to become multi-unit franchisees. Meanwhile, efforts to reward them for bringing new faces to the system are grossly lacking.

What about a formal referral program for this underappreciated resource?

Franchisee referrals were second only to digital advertising in sourcing closed deals in the last 12 months. Likewise, referrals had the highest lead to close ratio overall. Yet, some 37% of respondents in the AFDR report said their organizations provide no incentive to franchisees who refer prospects who buy a franchise.

Cash incentives, a waived registration fee for annual convention, a reduced royalty payment, and countless other means could show appreciation. A little could go a very long way with this captive audience. Consider this investment as important as the dollars spent outside your four walls.

While franchise growth remains robust, so do the budgets needed to make the magic happen. Now’s the time to put this data to work for optimal growth and make every dollar count.

Plan to increase your budget. Plan to deploy a mix of tools. Plan to reward those referrals. And please, I beg you, call your leads!