The Hidden Value in Franchise Lead Generation – Lifetime Value of a Prospect

September 20, 2023 — When lead sources are compared, “price”, and even “cost per sale” – are incomplete, if not misleading. There are additional critical components of value in assessing return on your investment in franchise portals or other third party lead suppliers.

Significant value exists over the lifetime of a lead or prospect who has given consent for you to contact them regarding your offering.

Given the level of time and investment required to launch most franchises, a large percentage of prospects will begin their research long before they are ready to launch, as evidenced by the data in the ‘time frame’ chart above. To calculate the true return from a lead and its source, you have to look at actions taken over the relevant period of time, and in the case of a major considered purchase (like buying a franchise), that time frame may be even a year or two.

What are key components of Lifetime Value (LTV)?

In the case of franchise leads, a simple way to approach calculation of lifetime value is to think about the sum of three buckets.

Immediate conversion value within the first three months (56.4% of prospects from the chart above)

Value Formula: Conversion rate X initial franchise fee X Percentage of Leads

Example: Using a hypothetical lead conversion rate of 1% and assuming half of the conversion would come from the first three months, the conversion rate in that period would be 0.5%. Assuming a median franchise fee of $55,000 the immediate conversion value would be:

0.5% x $55,000 x 56.4% or $155.10 per lead.

Remaining conversion value beyond three months (43.6% of prospects)

Example: Several months or even a year later, a lead responds to drip marketing, re-engages, and converts. With the residual conversion rate of one half of one percent, the median franchise fee of $55,000, and the remaining 43.6% of leads (sum of percentages for those who expect to start more than three months out in the chart), the longer term expected value of a lead would be $119.90.

0.5% x $55,000 x 43.6% = $119.90 per lead.

So the combination of these two pieces of “conversion” value with these assumptions would be about $275 per lead.

Consideration and Referral Value

Four years of surveying prospects has confirmed the role of franchise portals in the discovery and consideration of the franchises that they ultimately pursue.

Further, we have established from numerous surveys that about 70% of portal leads visit the franchise website after submitting an inquiry at the portal, resulting in significant additional referral value above and beyond the cost of the lead. Further, another 25% go on to submit another inquiry at the franchisor site.

While these two sources of value are difficult to quantify, they clearly bring prospects who are hungry for additional information and eager to engage with franchises they weren’t familiar with before visiting the portal.

Ultimate Lifetime Value

The greatest value, regardless of lead source, is of course the sum of all cash flows (royalties, etc.) in future years from a successful franchisee, discounted back at an appropriate rate for the time value of money. While the determinants of this value are very franchise-specific, this is the most significant component of lifetime value, and is the heart of the franchise development model.

While much of the discussion about franchise leads centers around cost per lead, cost per sale, and conversion rate, tapping into lifetime value is the goal of every growing franchise.

Lifetime value is the cumulative return over the useful life of a lead. While the above examples are hypothetical, clearly much of the value occurs after initial engagement by the prospect. In many cases, the prospect is researching and considering franchise ownership, but planning to move forward in the months or years ahead. Don’t neglect this extremely valuable cohort of future franchisees.

Bonus: What are some best practices to capture lifetime value?

Best Practice #1: Send an introductory email including your name and the number you will be calling from. The most effective franchise sales teams immediately make initial contact efforts in the channel(s) preferred by the prospect, taking into consideration the time zone of the prospect. This means an introductory email first, so that prospects will expect your call, recognize your number and/or Apple’s phone operating system will recognize and ring you through instead of sending you directly to voice mail, given the “silence unknown callers” feature.

But what happens to prospects who don’t respond immediately, or respond briefly, or disappear after initial contact efforts?

Best Practice #2: Drip email marketing, a series of automated email messages sent periodically based on actions taken by the prospect keeps your offering in the front of the prospect’s mind. It reinforces that you are still interested, and willing to wait until the prospect is ready. These emails should of course include your contact information, and the suggestion that you will reach out occasionally to discover where the prospect is in the process. Articles about the growth of the business and success stories will be appreciated.

The Small Business Startup Sentiment Index™ survey is conducted monthly by FranchiseInsights.com from a sample of franchise inquirers across the FranchiseVentures lead generation platform. The data presented here is from the August 2023 sentiment survey.

FranchiseVentures is the leading franchise lead-generation platform for potential franchisees to thousands of growing franchise systems in the United States and Canada. Its franchise lead generation brands include Franchise.com, Franchise Solutions, Franchise Gator, Franchise Opportunities, Franchise For Sale, SmallBusinessStartup.com and BusinessBroker.net, and together they provide the largest aggregation of prospective franchise buyers in the U.S.

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Published on Tuesday, September 12th, 2023.