We meet with franchise brands on a weekly basis, all eager to discover the secret formula for effective franchise development lead generation. While there are many factors to consider, the secret lies in knowing what it will cost to acquire a new franchisee. From there, you can break down the budget needed to hit your ‘new store opening’ goal and determine how many leads it will take to get you there.

While brand awareness and social proof play significant roles in the overall success, planning your marketing budget is, at its core, a numbers game. It’s time to revisit the basic principles of marketing math.

Start with the Basics: Cost Per Acquisition (CPA)

Depending on the stage of your franchise business, you can either start at the beginning (lead cost) or at the end (acquisition cost). More established brands often start at the end, using historical data, while emerging franchises typically start at the beginning and fine-tune as they go. For the purposes of this discussion, let’s start at the end.

What is Your CPA Target?

Knowing how much you’re comfortable investing in finding a new franchisee allows you to work backwards and set your annual marketing and sales goals. Some organizations aim for a target of 3:1 return on investment, while others set CPA targets at 10-20% of first-year revenue, or even lifetime value (LTV).
Consider how much your franchise fee is and the additional revenue you as the franchisor will earn over time. This will help you establish a CPA target. In marketing, we don’t allow you to shoot from the hip—spend time on your numbers to create an effective target that sets your team up for success.

Understanding and Calculating Your Cost Per Lead (CPL)

Now that you have your CPA target, the next step is to understand and calculate your Cost Per Lead (CPL). Your CPL is a crucial metric that directly influences your overall marketing budget. It’s the amount you’re spending to acquire each new lead, and it varies depending on the marketing channels you’re using.

To calculate your CPL, use the following formula:

CPL = Total Marketing Spend / Total Number of Leads Generated

For example, if you spend $50,000 on a campaign that generates 500 leads, your CPL would be $100.

Understanding your CPL is vital because it helps you determine how many leads you can afford to generate within your budget. The relationship between CPL and CPA is critical—you need to generate enough leads to achieve your CPA target without overspending.

Setting Your Marketing Budget Based on CPL

Once you’ve calculated your CPL, you can set a realistic marketing budget that aligns with your goals. Here’s how to approach it:

1. Determine Your Lead Requirement

Start with your CPA target and work backwards to figure out how many leads you need to generate. For example, if your CPA target is $10,000 and your conversion rate from Marketing Qualified Lead (MQL) to signed franchisee is 1%, you need 100 MQLs to secure one new franchisee.

2. Calculate the Total Leads Needed

Multiply the number of new franchises you aim to sign by the number of MQLs needed per franchisee. For example, if you want to sign 10 new franchisees, you’ll need 1,000 MQLs.

3. Set Your Budget

Multiply the total leads needed by your CPL. If your CPL is $100, and you need 1,000 leads, your marketing budget should be $100,000.

4. Adjust for Channel Performance

Different channels have different CPLs. If one channel has a higher CPL but delivers higher-quality leads, it might be worth investing more in that channel. Conversely, if a channel’s CPL is low but conversion rates are poor, you might want to reallocate your budget to channels that are working better.

Budgeting for Success

Once you know how many leads you need and have calculated your CPL, you can set your marketing budget accordingly. Remember, not all leads are created equal—different channels have different costs and conversion rates. It’s essential to diversify your marketing mix to balance quality and quantity. Test and optimize your channels to ensure you’re getting the best return on investment (ROI).

Monitor, Measure, and Adjust

Your initial plan is just that—a plan. As the year progresses, monitor your lead flow and conversion rates closely. If you’re not hitting your targets, don’t panic—adjust your strategy. Increase spending on high-performing channels, refine your messaging, or focus on improving conversion rates at different sales stages.

It’s also crucial to maintain flexibility. Market conditions, consumer behavior, and competition can shift. Regularly revisit your numbers and be ready to pivot when necessary.

Final Thoughts

Understanding and mastering your marketing math is the not-so-secret formula to franchise development success. By setting clear CPA targets, calculating your lead requirements, and budgeting accordingly, you can create a data-driven plan that aligns with your business goals. Keep a close eye on your numbers, be ready to adapt, and you’ll be well on your way to expanding your franchise network.

Need help with your marketing math? Contact Elysium Marketing Group today, and let’s start driving lead development for your franchise.