The franchise industry has shown remarkable resilience and adaptability in the face of recent economic challenges. The 2023 Franchise Sales Index, compiled by FranConnect, offers an in-depth analysis of the industry’s performance based on anonymized data from participating FranConnect customers. This comprehensive report provides invaluable benchmarks and year-over-year comparisons across various verticals, making it the most extensive and authoritative data source on franchise sales.
Market Overview
Despite the lingering effects of the pandemic, the franchise industry has continued to grow. According to the International Franchise Association (IFA), the franchise industry reached $826.6 billion in economic output by the end of 2023, a 4.2% increase from 2022. The industry was also projected to add over 257,000 new jobs, bringing the total franchise employment to 8.5 million.
Key Findings
1. Leads Volume: Most franchise sectors experienced a significant increase in leads compared to the previous period. Commercial & Residential Services saw the highest growth at 60.77%, likely due to the increased demand for home-based services and the rise of remote work. The Automotive sector, however, saw a modest decline of 3.90%, possibly due to the ongoing chip shortage and supply chain disruptions affecting the industry.
2. Deals Volume: The Personal Services sector had the highest growth in closed deals at 54.09%, reflecting the strong consumer demand for health, wellness, and beauty services post-pandemic. Automotive and Retail Products and services experienced significant declines of 55.34% and 41.95%, respectively, possibly due to the challenges mentioned above and the shift in consumer spending habits.
3. Speed to Lead: Brands that contacted leads within 4 hours of inquiry had a higher close rate (74%) compared to the average (58%). This finding underscores the importance of prompt follow-up and efficient lead management in converting prospects into franchisees.
4. Lead Sources: Existing franchise leads, although lower in volume, had the highest conversion rate at 40.9%, indicating that current franchisees are the most valuable source of high-quality, convertible leads. Franchisors should focus on nurturing relationships with existing franchisees and leveraging their networks for referrals.
5. Units: Locations transferred increased by 92.7% to 2,058, while locations terminated rose by 8.3% to 6,823. This trend suggests a dynamic market with franchisees exiting underperforming units and new owners stepping in to revitalize them.
Vertical-Specific Insights
1. Quick Service Restaurants (QSR): The QSR sector continued to dominate unit openings (25.56%) and transfers (45.68%), reflecting the strong demand for convenient and affordable dining options. However, the sector also accounted for a significant portion of terminations (27.85%), possibly due to increased competition and the challenges of operating in a high-turnover industry.
2. Commercial & Residential Services: This sector saw the highest growth in leads (60.77%) and accounted for the largest share of unit openings (29.47%) and terminations (30.40%). The growth in leads and openings can be attributed to the increased demand for home-based services, while the high termination rate may reflect the challenges of managing a geographically dispersed workforce.
3. Personal Services: The Personal Services sector experienced the highest growth in closed deals (54.09%) and accounted for a significant portion of unit openings (22.35%) and transfers (23.32%). This trend reflects the strong consumer demand for health, wellness, and beauty services post-pandemic and the relatively lower capital requirements for starting a personal services franchise.
Conclusion
The 2023 Franchise Sales Index provides valuable insights into the state of the franchise industry and the factors driving its growth and challenges. By leveraging these insights, franchisors can optimize their sales strategies, improve lead conversion rates, and make data-driven decisions to thrive in an ever-evolving market. As the industry continues to adapt to new consumer preferences and economic realities, franchisors that prioritize innovation, efficiency, and customer-centricity will be best positioned for long-term success.
For more information, including the full webinar recording of the report, visit our 2023 Sales Index Report here.