Franchise Selection

Franchise Selection Made Easy

Selecting a franchise to operate can be really exciting, however if can also be a daunting exercise if it's something you've never done before. Some of the important things to consider about franchise selection are:

A successful concept: Successful franchising requires a sound initial concept which has been proven in practice. Name recognition is important but is not enough on its own. The system must also be able to attract customers on an ongoing basis.

Financial Viability: The returns must be sufficient to enable the franchisee to obtain a reasonable return on their initial investment and to earn a reasonable income for operating the franchise after paying ongoing fees to the franchisor. In most cases, successful franchisors generate wealth by taking a little from a lot over a long period

Site Location: Two basic questions about location are:

In which suburb or mall is the franchise located?
Where in that area or mall is the store set up?

Whether the product or service is strongly impulse related or more destination-related, will have an influence on the relative importance of the business' location. For most businesses, a higher profile location will generate increased sales however the important question here is: is the extra cost of the location going to be offset sufficiently by increased sales? If the product is high impulse, it's worth paying for a location which will pick up on passing trade, whereas the location will not be so important for a destination-based product.

Some factors which should be considered when assessing the site location are:

The characteristics of the site itself: to ensure that the physical requirements of the store are met.

Generators of business in the vicinity: Some businesses do well if they are located nearby, as each generates business for the other. For example, pizzas and videos go well together, while bread shops, pharmacies and newsagents form a useful trio.
Demographic factors: It's important to understand the make-up of the surrounding population and match this with the target market for the franchise.
Exposure: Depending on the product, stores need different levels of exposure including vehicle and pedestrian traffic and the visibility of signage.
Competition: Some products thrive on being in with their competitors while others are better off in a stand alone position.

Risks of Franchising

While there are many benefits of franchise arrangements, effective franchise selection also includes weighing up the potential risks. Despite the impressive credentials of franchising, there have been many failures for franchisees, franchisors and franchise systems. Some of the common pitfalls to look out for during the franchise selection process are:

Misconceptions: Franchising will not save a bad product, image or concept. Over-rapid expansion can also lead to insufficient support of new franchisees and poor management decisions such as selection of poor retail sites.

Imbalanced Benefits: Some of the benefits of franchising are often very unevenly distributed and the arrangement becomes viable for only one party, both in terms of services provided and a financial package which offers appropriate returns to both parties.

Franchisee Restrictiveness: Franchisees often develop a feeling of independence when the business is operating successfully and may resent the controls imposed, the need to pay on-going royalties and the lack of freedom to trial new ideas such as variations of products or services. Conflict may also arise between the franchisee and franchisor in relation to audits, royalties and threats. Franchisees should also be wary of losing the value of goodwill built up by them if the franchisor terminates or fails to renew the franchise.

By being prepared and doing your research about franchising opportunties, you are far more likely to be successful throughout the franchise selection process.