Franchise Leadership and Development Conference Takeaways

A cautiously optimistic 2024 looms ahead as franchise leaders shoot to improve in 2024

 by Thomas Scott – CEO Home Run Franchises, Founder of Brand J

What is the best way to grow a franchise brand in 2024?

 This is the question a sold out and record attendance of the 2023 IFA and Franchise Update Franchise Leadership and Development Conference in Atlanta struggled to understand.

Franchising is historically a down market business – one that does well in down market cycles as people look to business ownership to get more stability in their lives and have more control over their future.

According to the state of the industry report, 84% of franchisors attending did not meet or will struggle to meet their 2023 franchise development goals. We are always a bullish and optimistic industry but when only 16% meet goals, it is a good time to take a step back and evaluate what we are doing to drive franchise development.

There are obviously some negative trends affecting the industry:

• Poor to sluggish economy
• Uncertain political future
• Skyrocketing interest rates making loans less affordable
• Stricter underwriting by banks making those loans harder to get
• Rising costs of supply chains and construction
• Joint employer legislation strangling some sectors
• The FTC considering drastic rule changes for franchisors
• FSOs and broker networks overselling systems and creating litigation

Does that mean we should expect underperformance in the year ahead? Are we using the above list as permission to allow ourselves to fail?

As a multi-brand franchisor of Up Closets and Dryer Vent Superheroes, we exceeded our development goal for 2023. Was it hard? Yes. Was it impossible?

No.

As I sat in the CEO Summit, a one-day session for CEOs only, we had some frank and open conversations about real performance, without a salesperson in the room.

If you want to be in the group that wins in 2024, read my thoughts and takeaways from this year – you might need to rethink your plan for 2024. You won’t be alone either.

Not all trends are bad. As I like to say, never waste a good recession:

• Younger buyers are entering franchising in large numbers
• The economy is forcing people to look at franchising as a viable option
• The move to AI is creating a new spin – franchising as the AI Resistant business
• Service brands are booming
• People are financing deals with HELOC loans at record rates
• Franchising still grew despite missing goals
• Franchising has become much more main stream

There are footholds in each of the above that can unlock performance, but if you don’t adapt your budget, change vendors, and take a new pass through what you are doing, you are guaranteeing to be in the 84% next year.

Here are my takeaways from the conference and the items I think you should think through if you are trying to restart and create a performance breakthrough for 2024:

Budgets are important

Budgets – for the 16% that actually hit their goals, my brand included, there was one key differentiator: they exceeded the average budget for non-broker lead generation.

The average budget for franchise development advertising was $256k. That’s for a brand that wants to do 40 deals in the year or $21k a month in advertising (includes broker marketing but not broker commissions). For the brands that exceeded their goal, they spent about 8k in pure advertising per sold owner.

Marketing, especially fran dev marketing, is not linear. We need to take a franchise operations and marketing 101 lesson from our support teams on the other side of our business. If you spent 256k and had a 8k cost per deal in 2023, that doesn’t mean the person that spends 100k will have the same cost per deal. In fact, it jumps from 8 to 16k if you don’t devote enough. Inflation is real, advertising simply costs more.

Cost Per Lead Increasing

The franchise lead generation partner I use, Jack Monson and the team at Brand J, gets an average cost per lead at or below $100, and for some sources much lower. The report this year was a shocker – the average cost per leads was at or above $300 a lead for many brands. A small advertising budget just won’t work in 2024 – go in eyes wide open and spend more in your budget than you think.

Does a Higher Broker Fee Really Matter?

The median broker commission is $27,500.

Many brands that successfully sell units have commissions below this – often $12-15k per unit with a multi unit 2 or 3 pack requirement. The advice that you need to greatly inflate your fee so you can double your sales is not turning out to be valid. Brands that have increased commissions did not always sell more, so beware of this advice.

Brands that raised fees did not see increases, and if they did, they did so by killing the majority of their organic recruitment efforts. Brokers are a great option – in the year ahead, it is important to make sure you run an actual profit in your development department, and make sure some portion of the franchise fee goes to your bottom line.

In speaking with the CEO of PuroClean, he mentioned that if someone told him five years ago that you could make money on franchise sales, he’d show you a questionable bookkeeper. His brand produced a profit this year and was in the 16% of brands that hit their budget. He’s on the right track.

FSOs are a problem

There was a lot of frustration with the rise of FSO and the apparent damage they’ve done to the franchise industry. I talked to several CEOs and a few Private Equity buyers about a new trend. When they look to acquire brands, they are looking for founder grown brands and see those as more valuable than FSO grown brands. Because these outsource franchise sales companies push very high franchise fees and large multi unit deals on franchisors that are NO READY and have no chance of supporting the growth, massive litigation has broken out. Brokers are part of the problem, owners thinking they can flip in 2 years are also a problem, but the FSOs make this negative situation possible.

One anonymous Private Equity buyer I talked to told me stories about how they looked at several FSO brands with a few hundred units, and when they looked under the hood, they walked away. They are now avoiding FSO built brands or doing triple the due diligence they would with a traditional, founder built brand.

Quiet Quitting Broker Networks

A well known CEO coined the best phrase I heard this year when he said his brand, which had historically done 85% of their work through brokers, is now doing 14% of their deals with brokers. He said they are ‘Quiet Quitting’ the broker networks and rethinking their strategy with franchise brokers.

CEOs are frustrated with broker networks, and it is clear that although 18% of deals come from brokers, broker networks are not doing enough to make sure franchise brands do deals. This CEO, like many others, is withdrawing from networks and slimming down to 1 or 2 with a goal of having 4-5 trustworthy brokers in a single network and spending money directly on them, rather than marketing, fees and conferences with the network.

In general, brands talked about how broker networks made salespeople lazy in 2023, and they are generally returning to organic lead generation with robust recruitment websites, social commerce, digital ads and other forward facing and cost effective franchise lead generation, similar to what Brand J uses. They are more likely to produce deals than brokers in the year ahead.

Renewed Focus on Traditional, Organic Lead Generation

With the frustration with Broker networks from so many brands, there was a lot of buzz on taking back control of your lead generation efforts and diverting time and resources back to tried and true franchise lead generation tactics. This includes investment on your recruitment website, creating a higher performance site which converts visitors to leads, storytelling content marketing, franchise development videos, podcasts for recruitment and all sorts of digital and social advertising.

Short Form Video as the New PR and Franchise Lead Generation Tool

The real surprise tactic brands have turned to is using short form video to recruit franchises and replace diminishing PR. This video, focused on franchise recruitment, is rare in our industry, but common outside franchising.

I leaned into this last year with my brands, and the results are solid – follow me on Linkedin if you want to see they types of videos I’m talking about. My Dryer Vent Superheroes brand recruited a well qualified and SBA funded candidate from TikTok this year off a video on ways to finance your franchise.

I’m not alone – The Joint Chiropractic, Belfor – Chemdry, 1-800 Water Damage, NHance, and a few other early adopters are using this new tactic with great affect. These videos are not just for organic reach, they are the backbone for a monetized digital and social ad recruitment campaign.

Short form video is here to stay – executing this on a daily effort costs about $5k a month, but reaches millions of potential people and fuels all sorts of connections. There was lots of buzz about this, and I’m a fan.

Lots of Buzz About AI

It’s been a full year since Chat GPT launched, and it’s the topic most people want to talk about. Here’s the deal though – other than using it to edit videos, improve normal written work, or for some basic sales automations, it isn’t a tool that helps people recruit more. It is still amazing, but it isn’t new and its quickly become part of our daily lives.

It’s an augmentation that allows us to write better and more, and it can easily make us more productive.

Here are the top AI nuggets I heard:

• Use AI to evaluate phone call transcripts
• Use AI to create better performing ad copy
• Use AI to edit videos and add captions
• Use AI with Zapier and your CRM to trigger sales automations
• Use AI for SWOT analysis of your competitors
• Don’t use the free Chat GPT, or your private or proprietary info might be compromised – use the paid version only for business

The tools are evolving so fast, I’m on a panel in January at a franchise conference, and what we do now will be irrelevant.

The best advice I heard was simply not to bury your head in the sand and learn the CORE method of writing Chat GPT prompts. Use it to do your work faster and do a better job of the work you are already doing.

High Interest Rates Killing Momentum

For some brick and mortar brands, higher interest rates are making expansion difficult. Even at Home Run Franchises, a simple SBA Express loan has a rate north of 11%, and that makes it challenging for some buyers. Expand this to more expensive concepts, and funding is the main challenge for brick and mortar concepts.

Sadly, there is not likely to be relief in 2024. If your concept is affected, brands are downsizing and thinking about creating solutions for development that fit the year ahead.

Younger Buyers Emerging – Boomers Aging Out

There are record numbers of younger buyers – both Millennials and GenZ buyers opting for franchises, and they have radically different ideas of franchising and differ from older franchisees in how they behave in the sales process.

One important nugget is that the sales process is changing, and depending on the generation of the buyer, your salespeople need to also adapt to get peak performance. Younger buyers expect quicker access to info and text communications, plus they don’t like webinars or Discovery Days the way older buyers have historically.

A big trend this year was Baby Boomer buyer aging out and shutting down operations rather than selling. Resale programs are more important today than ever before, and if you can identify possible owners that might age out, start conversations with them about exits and plans for exit, so you are ahead of the curve and don’t lose an otherwise salvageable unit.

Conversion Types on Your Website Changing

A form is not enough these days!

The survey data showed that 1/3 of the recruitment websites in the survey lack a phone number. This despite the data that shows phone leads close at twice the rate of a form fill.

Look at your website and make sure the number is on every page, near the form. Make sure this either goes to a recruiter or to a call service like Answer Connect, and not your general phone directory or main call center. Franchise leads are fickle and these are highly valuable calls – don’t waste them.

Integration with Calendy calendars into websites are also becoming more common and produce better results than just relying on forms. Having a ‘Apply for a Franchise’ page in your research funnel that has a form, a phone number, an embedded Calendar for meetings and even a chat with a recruiter is what a modern website looks like.

Remember that younger buyers are mobile only, so be critical of your own website or get an experienced vendor who knows franchise sales to give you an audit – this single item can increase sales without much cost.

You are Only as Fast as Your Slowest Vendor

One theme that came up was we are in a rapidly changing era of franchise recruitment. There are record numbers of people looking at franchising, but we’ve gotten lazy about recruitment and taken our eyes off innovation.

If you haven’t worked with a growth partner vendor that brings you new ideas and keeps your strategy ahead of the curve, you are likely to miss your goal. Finding vendors – like the ones I use for my development – that continually stay ahead of the curve matters. Don’t assume you are using the right vendors as you create your 2024 budget – there are new tactics, new technologies, and both positive and negative winds blowing.

This is true of all vendors, and especially true when it comes to franchise development.

What I’m Doing for Next Year

I plan to increase my spend next year and attack organic recruitment. I’m using AI as often as I can and I’m using short form videos for recruitment and as a replacement for PR (cheaper and produces better results).

I’m investing in new recruitment websites designed to convert and I’m thinking about how to recruit younger buyers. I’m rethinking and narrowing my focus for broker networks and thinking about how to go directly to brokers, focusing on fly in events vs conferences.

What are you planning to do in 2024 to grow your franchise brand? If you attended, what did you learn? Reach out to us today to start a conversation.