Inflation cooled, prices stabilized, supply chains rebounded and jobs reports remained strong in 2023. But that doesn’t mean the year didn’t have its share of economic curve balls to get to where we are now – looking out on 2024 with renewed energy for what is to come in franchise development trends.
The year that was 2023 bucked the down economic predictions that were expected in the franchising world. Hand wringing over a looming recession soon faded last year as a hot world economy drove prices higher with surging inflation. The Federal Reserve Bank took notice and made the decision to increase interest rates. But as the year ended, a clearer economic picture was taking shape – one that gets us excited for the year to come.
“This last year has been a challenging but exciting year for franchising,” says Curious Jane CEO Lora Kellogg. “While many of us in the industry know that down economies can be beneficial in franchising, it takes a strong franchise development marketing plan to pull that off. And 2024 won’t be any different for any of our clients.”
While any predictions to be made about 2024 are about as reliable as shaking a Magic 8 Ball, there are a few trends to look for in the franchising world entering the new year. Watching and positioning yourself effectively to take advantage of these continuing trends will be key for a brand’s franchise development program growth, Kellogg adds.
Less Dependence on Brokers
During the pandemic, when interest rates were low, it was an easy decision to use brokers. They didn’t have to do much selling and leads were abundant. But in the current economy, where inflation has driven prices higher and limited profit margins, the tables have turned. In the current economy, selling is tough.
Franchise Update Media surveyed 120 brands for its 2024 Annual Franchise Development Report. In the report, 44% of survey respondents said they rely on brokers for franchise recruitment or lead generation. In the same survey, companies reported brokers accounted for about 29% of the franchise recruitment budget (digital advertising was first at 45%). However, when it came to generating leads, brokers accounted for only about 13%. The vast majority came from digital advertising.
Some franchisors are realizing the high fees charged by brokers aren’t worth what they are paying, Kellogg says.
With one client, whose franchise fee is $60,000, they pay a 50% fee to the brokers they use. But when they weren’t selling enough, the franchisor increased the fee they paid by another $10,000 as an enhancement. So now $40,000 out of the $60,000 fee is going to brokers, and the company was only spending $200,000 on their own for marketing.
“The problem with using brokers is it’s really expensive over time,” Kellogg says. “Relying on brokers versus building your own program is dangerous long term. When brokers do the heavy lifting, you don’t really build a great internal marketing program.”
To change, Kellogg adds, brands need to invest in themselves – in PR, digital marketing, a great CRM – rather than placing such an emphasis on broker sales.
Increasing Digital Budgets
A strong digital marketing strategy will be key moving forward in 2024.
“You need strong digital marketing presence,” Kellogg says. “You need strong creative. You need strong analytics to tell you what’s working and what’s not.”
In the Franchise Update Media survey, respondents reported that digital advertising accounted for 60% of their leads, but only 45% of their franchise development budget. Digital advertising is also the No. 1 source for closed deals.
“In general, digital budgets remain consistent with a continued focus on lead generation through digital channels,” the report says. “Employing diverse media channels for franchisee recruitment remains a successful strategy. Brands that adapt by directing funds to the most effective channels have higher chances of achieving their goals.”
Rising Costs and the Importance of First-Party Data
As many businesses have already learned, the cost of doing business has gone up in the last year, thanks to inflation. And any immediate relief to that remains to be seen.
Costs of goods are up. Shipping is up. Real estate is more expensive and harder to find. Labor is expensive and difficult to find in a robust job market. Advertising costs have increased. Franchise fees are also on the rise.
So, what does that mean for franchise development? The pinch of the digital wallet is going to be felt even more by both you and your customers. This uptick in costs affects everything.
It also means a pivot in your targeted audience for sales growth if you want to meet your goals. In the coming year, expect to see a shift toward franchisors courting investor personas for their brands.
Without data and a good CRM, sourcing for leads is more difficult. The more robust your CRM is, the more data you will be able to collect. Now that cookies are a thing of the past, the more first-party data you have on your audience, the more cost-efficient your campaign. And to make yourself heard above the digital noise, you’ll need to have an optimized omnichannel approach. You can’t limit your brand’s presence to one or two platforms.
With all the competition within those channels, the need to be disruptive is important.
Increased Use of AI
Robert Mitchell, chief AI officer at WSI, which describes itself as the largest digital marketing network of its kind with clients in about 50 countries worldwide, sees the use of AI becoming more prevalent in the use of franchise development in the coming year – especially when it comes to developing more content at a faster rate.
And if franchises don’t get on board and get comfortable with the use of AI, they will be left behind.
“This technology is moving so fast that you can’t sleep on it,” he says. “So, you just gotta be ahead of the curve with your capacity to understand that technology and implement it for that client.”
Part of that trend is for franchisors to learn how to leverage the use of content creation in a smarter and more reliable way that will be scalable. As AI becomes more reliable and the technology improves, the amount of content you will be able to produce will grow exponentially.
But, Mitchell cautions, this doesn’t necessarily mean you should replace people with new technology to save money. In fact, he insists the human element needs to remain and that roles need to adapt to it. It’s (unintentionally) part of the company’s tagline – “Embrace digital, stay human.”
“That stay human piece is another way of saying it is the human in the loop, which is a very common phrase that is thrown around in the marketing spheres of people who are using AI,” he says. “What should be obvious in that is that you never go straight to market with an AI product, right?”
If it’s wrong, it will cascade into a false content production. Once it is released to the web and indexed by Google, it all gets attributed to you.
“That need to be at the forefront of that (AI) conversation,” he says. “You need to make sure the human is in the loop, otherwise you’re going to look stupid, and you can’t go backward.”
