Franchise Update Magazine Issue IV, 2016 | Page 34

2017AFDR
“We’re hearing that greater uncertainty stemming
from the sluggish economic recovery has dampened
the appetite for risk among candidates.”
year, while the average cost per sale of $7,558 also was up,
from $6,300 last year.

• Sales closing ratios. Again, not much change from the
previous year. Although the ratios for 2015 and 2016 were
lower than those in 2014, our panel of experts for that year
categorized the 2014 figures as unusually high, more of an
aberration than a norm. At 2 percent, the lead-to-sales ratio
in 2016 was more in line with the numbers from the past
5 years. The applications-to-sales ratio, at 20 percent, is in
line with 2015 and 2013, and much improved from 2011 and
2012. While the discovery days-to-sales ratio held fairly steady
compared with the two previous years, those ratios dropped
noticeably from 2011–2013.
Last year we wondered if more unfit candidates were getting through to discovery days, if franchisors were becoming
more selective in the final stage of the award process, or if
the economy or financing issues were the reason for the decline. This year we’re hearing that greater uncertainty stemming from the sluggish economic recovery has dampened
the appetite for risk among candidates, and that increased
competition for prime real estate sites for the many brands
that have similar footprints are contributing factors to the
decline here. In the legal panel at the Franchise Leadership
& Development Conference, many questions were about
external threats to the franchise business model coming
from regulators and legislators. Whether the threats are real
or not, this could be another factor as candidates question
the long-term viability of a brand’s profit model in light of
possible future restrictions. Franchisors must examine their
discovery day process to see where candidates are dropping
out and conduct exit interviews with those who drop out,
asking why.

• Franchisors exceeding goals. Several clear trends are
apparent among brands that exceeded their goals in 2016.
Their cost per lead, at $76.50, was significantly lower than
the average cost per lead of $109 reported by all respondents.
Cost per sale, at $6,266, also was much lower than the average of $7,558. This would indicate that the franchisors exceeding their goals are much more efficient in their recruitment spending. Interestingly, the “exceeders” had a lower
applications-to-sales ratio than the entire survey group (15
percent, compared with 20 percent). However, the discovery day-to-sales ratio of 80 percent for those who exceeded
their goals was much higher than the average of 63 percent
for the entire group. This could indicate that the most successful brands weed out non-viable candidates earlier in the
process, rejecting more applicants before they get to discovery
day. Looking at money as a factor, 57 percent of those with
an investment per unit above $250,000 exceeded their goals,
compared with 71 percent the year before. There seems to be
increasing evidence building that although lower-cost concepts are easier to afford for those starting out in franchising,
the food sector is overcrowded and the big action is coming
at the higher end, driven by ever-larger multi-unit operators.
More brick-and-mortar service concepts, however, exceeded
their goals in 2016 than the year before. A comparison of the
“exceeders” with last year’s respondents by industry segment
shows the following:

Segment
Food

Retail non-food

Service (brick & mortar)

Service (territory/pop.)

Retail food

2016 2015
44% 59%
9%
11%
30%
15%
9%
11%
9%
4%

• How multi-unit franchisees find new brands. About
six in 10 (58 percent) multi-unit operators said they attend
trade shows to find new opportunities, down from 67 percent last year. Other ways they find new brands include:
trade magazines (50 percent, up from 36 percent last year);
personal experience with a brand (47 percent, up from 36
percent last year); and referrals from associates (47 percent,

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