The cost that brand’s spend per deal is skyrocketing. No Limit Agency CEO Nick Powills explains why.
by Nick Powills
(RestaurantNews.com) The short answer to the question of how much it should cost to sell your franchise opportunity is the industry standard: $10,000 – $12,000 in franchise marketing per deal. However, that answer is vague and not specific. In fact, despite you not wanting to know this, it is changing. The cost per deal is skyrocketing. Here’s why:
We recently hosted a franchise mastermind at our office (read other findings in the previous column – click here). Brands that had 1,000 units had the same goal as brands with 150 units. Their marketing budgets varied – including a 1,000+ unit brand having less budget for development than an 80-unit brand.
Collectively, the brands at our mastermind had the following data:
Total Goal for 2017: ~250
Total Development Budget for 2017: ~ $1,000,000
Average Per Deal: $4,000
One brand is getting a deal per $50,000. Another brand is getting a deal per $1,000. Group conclusions:
- Based on brand size and awareness, lead flow changed. For instance, a consumer product brand with 1,000 locations naturally had better lead flow than one with 100 locations.
- The group agreed that the majority of deals came through referrals and fans of the brand.
- Unit-level economics and validation were the two most important pieces in turning a lead into a deal.
- For all brands, qualified applications were higher this year over last; yet every brand still focused on leads first.
If 84 percent of b-to-b deals come from referrals or fans of the brand, then the budgets were mainly used for attracting the 16 percent. Thus, the numbers change a bit when looking for the 16 percent:
Total Goal for 2017: ~40
Total Development Budget for 2017: ~ $800,000
Average Per Deal: $20,000
The $20,000 per deal seemed more fitting as a general number. That number, however, is irrelevant with the bigger brands. The bigger brands had the smallest budgets, despite trying to sell secondary markets (less needles, bigger haystack).
So, here’s the scale we would suggest in budgeting for deals:
Over 250 Units: $10,000/deal in franchise marketing
100 – 249 Units: $15,000/deal
These numbers will change based on the category; the heat of that category (is it home improvement or is it fast casual pizza?); the strength of the “Why You?” and the “Why Now?”; the depth of the friends and family; the website and media credibility; and the support of the system to grow (does marketing, operations and sales all work in unison?).
The numbers will continue to go up. If today there are 50 franchisors spending $100,000 each on development to get deals, tomorrow there will be 75 franchisors spending $125,000 each. The mastermind agreed that the total number of people wanting to buy a franchise is decreasing, too – since the forces to quit your job and make a giant change are slightly lessened when the economy is in OK shape.
The bottom line: Franchise development is hard – possibly the hardest widget to sell, period. Selling ice to an Eskimo seems easier and, perhaps, more cost effective.