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How to Calculate Your Marketing Budget for Franchise Development: Data is King

How many times have you been given a goal for awarding new franchise agreements and know that your budget will likely not be big enough to hit your goals? In the past, many relied on gut instinct or simply the budget they were given and hoped for the best. Today, we are able to use tangible data to demonstrate the cost per lead and cost per sale, which allows you to back into a realistic budget that will likely achieve your goals.

Now more than ever, budget allocation is more likely to be awarded to the franchise development teams that can present a plan with data that supports the overall goals for the organization. It’s time to prepare and set yourself up for success for 2021 planning.

Track your results and set benchmarks.

Knowing what data to track is step number one. Don’t track data for the sake of tracking. Instead, approach your tracking with insights that can help you sell in your plan. Some of the key metrics that all franchise development teams should track are as follows:

  • Average Cost Per Lead (CPL) – What was your average cost by each of the channels or tactics that you executed in 2019? Don’t underestimate the value of leads from channels that might be helping with brand awareness but don’t necessarily produce a high volume of leads. A multi-layered approach wins all the time, and assessing results overall is a better indicator of success versus tactic by tactic.
    • Average Cost Per Sale (CPS) – If you executed 10 agreements and spent $100,000 in media and marketing efforts, then your cost per sale is $10,000. Industry average, according to the 2020 Annual Franchise Development Report* by Franchise Update Media, is $10,500. Are you in line with that average, or do you require that candidates buy more than one unit and the investment is much higher?
      • Application to Sales: 27.7%
      • Discovery Days to Sales: 76.7%

*Source: 2020 Annual Franchise Development Report

Activating your data in the planning process.

Now you have your benchmarks and you have your sales goals. You are armed with a formula for crafting a budget request. But like anything else, there are nuances that need to be taken into account and thought about.

Assuming you feel good about your estimated CPS, you can multiply that number times the number of units you hope to sell. For example, if your average CPS is $10,000 and you have a goal of selling 20 units, then your budget needs to be $200,000. This number does not include any upfront costs that may come with setting up your campaign with a marketing and media plan or developing a messaging plan, but it’s a good guide for your ongoing media and ad development needs.

With that being said, there are a number of other factors that you should consider.

  • Emerging brand vs. Established brand – As we know, brands that are more well-known to consumers typically have a higher brand awareness. This in turn helps your top-of-the-funnel awareness, and you can spend more of your budget on lead generation tactics versus education on who you are. Emerging brands may not have an average CPS and should error on the high side to compensate for the low awareness.
  • Regional vs. National brand – If you are a regional brand looking to expand outside of your core market, you may need to educate buyers on why they might want to invest and expand the brand in a new market. Growing concentrically as a regional brand could be the most cost effective and should be analyzed.
  • Does it align with your goals? – If you have calculated that you need a budget of $200,000 like the scenario above, but historically you have only had a $30,000 budget, setting expectations will be important. You don’t want to over promise and under deliver.

Continuing the momentum.

With your benchmarks set and the know-how to formulate a strong performing plan, keep that momentum going. Continue to track results year-over-year so you can use the data to sell in a new budget each year. As you grow, your needs will change and so will your metrics. Being nimble and showcasing the data for your board or leadership team is the ticket for budget approvals. They will appreciate your due diligence and feel more confident in your request. Want to learn more about planning for franchise development and see what is working for other franchise brands, get a free audit of your plan today.

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