How Big is the Current Market for Recruiting New Franchisees?

Currently, 100 qualified franchise applicants are worth between $1,500,000 and $2,000,000 to the franchise industry, at the current compensation rate for franchise brokers. Or measured by average acquisition cost.

"The data shows that in 2016, franchisors utilizing the FranConnect system reported signing 5,892 new franchisees. Frandata estimate, that in any given year, 14,000 to 20,000 people invest in new franchises. "

At this average rate of expansion/replacement the value of of 14,000 to 20,000 new/replacement is between $210 million to $400 million per year. (And this estimate might be on the low side. The average reported acquisition cost of a new franchise recruit is likely to be lower than the actual cost.)

Compare this to recruiting overall: "US staffing industry revenue will rise by 7% this year and 6% in 2016 to bring total revenue in the industry to a record $142.4 billion next year, according to the new industry forecast by Staffing Industry Analysts."

The market for recruiting new franchise operators is large, and not dominated by any particular group of franchise sellers.

The Iron Law of Buying Franchise Leads

Keith Gerson states: "The franchisors surveyed in 2016 generated 491,383 leads, resulting in 5,892 buyers, or a 1.2% lead-to-close ratio. Therefore, out of every 100 people inquiring into investing in a franchise, approximately 1 moves forward."

"Franchising has been stuck around a 1% lead-to-close ratio throughout my 30-plus year career in franchise development."

However many portal owners are advising that their data shows that the lead-to-close ratio is closer to 1/2%. You need 200 leads for 1 sale.

Think about what that means you, if you are relying solely on bought leads. To buy 100 leads from various sources, you can spend between $2,500 to $8,000. And let's suppose your return on a sale is $15,000 - $20,000 commission. Is buying leads a good business?

You have (2) basic problems.

1. The amount of capital needed to secure an adequate number of leads, or contact information.

2. The time for your sales cycle, how long it takes on average for a sale.

Now, the ordinary franchise sales process is 90-120 days.

But, here is the kicker for you: getting someone's contact information as a lead doesn't mean that they are at the top of franchise sales process, ready to buy in 120 days.

Many fully qualified & interested franchise buyers don't buy when you first contact them. They may not buy for 6 months, a year, or even longer. You could run out of capital long before you get someone through the franchise sales cycle. Or, more likely, you own sales cycle drags on too long to produce reliable income.

In fact, experts claim that buying more leads is a big mistake.

"Franchisors have no problem generating leads. FranConnect counted almost 500,000 leads generated by 487 companies in 2016. If 14,000 to 20,000 people who invest in franchises each year represent 1% of those who inquire, that means there are a total of 1.4 million to 2 million leads each year."

There are a lot of leads -- not so many franchise buyers, though.

You need to work or prospect the leads that you already have. Until they either "buy or die", remove themselves from your list.

LinkedIn gives you added advantages, if you are willing to spend the time.

The next 3 lessons are on Making LinkedIn Prospecting Work for You:

1. How to Use LinkedIn like a Franchise Trade Show -- The Magic of Just 1 Lead.

2. The New ABC in Sales.

3. How to Get the Right Sales Call - Get the Prospect off of LinkedIn

(Previous Lecture: Introduction to Social Prospecting)

Introduction: Who Do You Know?

In the early days of franchising, franchisors found new operators by asking "who do you know?".

For example, Colonel Harland David Sanders left Kentucky in search of great restaurant operators who could be Kentucky Fried Chicken franchisees. The Colonel would roll into town and ask "who do you that has good food for a hungry traveler?"

He would check them out and then pull his "chicken cookers" out his trunk and proceed to make the restaurant owner his Kentucky chicken.

The Colonel did his "who do you know" pitch across country until he reached Salt Lake City and Pete Harmon. He signed up Pete to be the first Kentucky Fried Chicken Franchisee.

Other franchise developers used the Colonel's recruitment technique of going from town to town asking around at the city hall, the chamber of commerce, the Elk's Club, etc...asking "who do you" to sell their franchises.

LinkedIn is the ultimate social networking neighborhood for asking "who do you know" to people who have an active or latent interest in franchise ownership.

Rise of the Web Portals - Buying Leads

Prior to LinkedIn, getting reliable contact data from people in transition, interested in new opportunities, or starting a business was very hard.

The Web Portal industry sprung up to fill this need. By a combination of methods, scraping job boards, creating their own collection forms, and reselling contact data amongst each other, the Web Portal industry created a database of contact information. They called this contact information: "leads".

"Leads" were resold many times over to franchise brokers and other web portals.

All of this made certain amount of economic sense, because this contact information was hard to obtain.

Currently, "leads" produce contact information which industry experts say 1-100 or even 1-200 will produce a franchise sale. At current prices for "leads" or contact information, an average franchise broker can expect to layout between $2,500 - $5,000 to buy enough leads to get a franchise sale. Or much more.

Next Lesson: The Alternative to Buying "Leads" - Prospecting on LinkedIn