We love any opportunity to introduce the world of franchising to new, aspiring entrepreneurs. So when 1851 Franchise asked for our input regarding how to know if the territory you want for your franchise will be viable, we jumped at the chance!
Here's a little background with the answers we provide to their questions!
1851 wanted to know about:
# 1. Assessing franchise market demand. Conduct thorough market research to determine the demand for a brand's products or services in potential locations.
Matt Lucas from The Franchising Company said:
One of the most appealing aspects of any franchise is that it offers a proven, established business model. If you can validate success in markets comparable to the one you desire, or with comparable products and services in the market you prefer, you’re sure to have a much easier road to success.
We coach prospective franchisees to find markets comparable to the one they desire, where the franchise already has a successfully operating franchisee. Then validate the franchise's performance with these owners. We also recommend performing due diligence to find and research potential competitors already operating in their chosen market. Are they doing well? Do they have good reviews? Are they substantially fulfilling the need in the market?
Competition is NOT a bad thing. Competition is usually a good indicator of a 'need' in a market. For a lot of brands, you don't necessarily have to pull market share away from your competitors, rather you just need to carve your piece of that pie to be successful.
There is a Pool Route franchise that has a corporate location generating over 7 figures in gross revenue while only capturing 6% of the available market.
# 2. Evaluating territory availability. Determine if the franchise brand has availability in the market or territory you want. Work with the franchisor to understand the brand's expansion plans to make sure they line up with your own.
Matt Lucas from TFC's response:
It’s always easier to launch your first franchise in the territory you’re most familiar with, whether you plan to operate actively or passively, being present daily is integral.
The first thing any prospective franchisee should do before they get too far into the weeds with a franchise brand is to verify their market of interest is still available. It will always be easier to launch a new business in your backyard versus trying to open hundreds of miles away. There is no need to waste your time on further due diligence if the brand doesn't have a viable territory for you.
Once you have verified the market is available, then you can begin you’re the rest of your research into the opportunity. Additionally, look around the country to see how fast the brand is growing/expanding. Some brands are slow movers, nothing wrong with that. Others are on a fast-paced growth cycle. For these opportunities, a prospect will want to decide, if they want to and are financially able to, acquire multiple territories up front to secure future growth potential. For fast growing' brands, expansion opportunities may be limited in the future unless you go about acquiring other owners in your market down the road.
# 3. Considering market saturation. The problem with "prime" markets is that they may already be oversaturated with comparable businesses. Make sure there's room for your franchise to thrive without being overshadowed by established competitors.
TFC's Response:
Competition is not a bad thing! In fact, competition can be quite the opposite. It can indicate potential and demand. Competitive evaluation is key in choosing a franchise territory. I would never allow competition to prevent me from moving forward with a great franchise opportunity.
I'm going to reiterate what I mentioned in the first question. Competition is not necessarily a bad thing. In fact, I often look at competition being a good thing as it indicates there is demand for the product/service you will be providing. The real question is 'What can I bring to the table to get my slice of the market?'. This could be a differentiator that the franchisor has over their competitors. It could be better customer service provided by you than your competitors. It could be better marketing strategies. Maybe it is being able to offer the product/service at a better price. Are there a lot of new residents moving to the area? If so, that is untapped potential that will not even be familiar with your competitors once they land in their new hometown.
I would never allow competition to prevent me from moving forward with a great opportunity just because of the competition itself. If the market demand is strong, I will find a way to position myself to be successful and gain my fair share of the market.
# 4. Exploring growth opportunities. In addition to assessing existing markets, look for emerging or untapped markets where the brand has the potential to gain a foothold.
TFC:
The easiest way to identify emerging markets is to first look at the most successful markets. Then look for correlations to other currently “franchise-less” markets.
If you are not married to a specific market and willing to relocate anywhere in the US, then the first questions I would ask a franchisor are 'Who are your Top Performing Franchise Owners?' and 'Where are they located?'. Then find yourself an available market that is comparable and look at acquiring that territory.
Some franchisors will have 'Target Markets' identified for growth. Ask your franchisor if they have created a list already. If so, you can compare these markets to those of their top performing franchise owners to help make a decision on where you locate.
# 5. Factoring in operational considerations. Customer and employee accessibility, logistics for supply chain management and operational efficiency, etc.
TFC:
You can’t have a successful franchise if you can’t find employees or easily source the things you need to operate. Always evaluate employee accessibility and supply chain logistics before committing to a franchise.
Operational considerations like employee accessibility, supply chain logistics, and efficiencies are paramount to consider when opening a new franchise.
Obviously, you need to make sure there is market demand for the product/service you are offering but you also need to be sure the market has a supply of employees to help you build/grow in the area. Cost of living is a great indicator. Are you looking at a brand that requires a large, retail B&M Facility? If so, initial investments and ongoing operating expenses can vary greatly depending on the market. If you're in an extreme rent area, are you going to be able to offset these higher costs by charging more than other franchise owners in the system do for the same product/service?
View their full article about Franchise Territory Availability.
