How Can You Determine if a Franchise will Work in Your Area?
Before New York Broadway producers bring a production on the road, they’ll test it in a few smaller cities to see if the humor or pathos translates well to different audiences. After all, not every town sees life in the same way as New Yorkers. A similar comparison could be made with franchised businesses. A concept that does exceptionally well in one location may not have the same appeal in a different part of the country.
Let’s imagine you live in Raleigh. While visiting friends in Scottsdale, you discover they are franchisees of a business that provides landscaping to residential clients. They are doing very well and love the company. As soon as you get home, you research the concept and decide it is just what you’ve been looking for. But will this business do well in your area? The answer will depend on many factors.
Your first step should be to compare the population of the franchisor’s successful businesses to the population in your area. You should be able to find population data by using the internet. Here’s what you should be looking for:
Total Population – Many businesses need a minimum population in a territory to provide enough potential customers to make the business successful. If the landscaping business needs several hundred thousand residents in a territory and you live in a rural area of a few thousand, this concept isn’t a good fit for you.
Population Density – If the business requires a retail location, how far will customers drive to get to you? Each type of business will draw customers within a finite radius. If you have a coffee shop, your customers will live or work within a mile or two of your store. If your franchise offers something needed infrequently – such as furniture or legal services, you might draw customers from 5, 10, or more miles. Once you determine your actual radius for drawing customers, examine the data within your draw area to see if there are sufficient people to keep your business thriving.
Demographic Characteristics of the Populations – Will your franchise concept appeal to a broad demographic of the population of your territory or does it have specific appeal? An authentic Greek deli might draw a variety of people, or it might just attract customers from a Greek background. If possible, find existing franchises in locations with a population make up similar to your territory to see if the concept does well. If the potential business serves teens or tots or seniors, does the territory you want to open have sufficient numbers of the appropriate customers? Don’t assume you know the answer – do your research!
Income Levels – Equally crucial to age and ethnic characteristics are the income levels of your population. While fast food and quick-serve family restaurants may do well in various locations, other concepts need to be located in areas where the income levels are sufficient for the product or service you will provide. If you will be offering something most would consider a luxury item, such as laser hair removal or spa treatments, make sure the average income is high enough to support your business.
Purchasing a franchise is not a guarantee of success. You will have the accumulated experience of those who have gone before you, and you will have the training and support from the franchisor who has a vested interest in seeing you succeed. But to misquote a line used in many movies, failure is an option.
To maximize your chance of success and to diminish failure as an option, it is essential that you thoroughly research the franchise opportunity itself and that you also thoroughly understand the demographic makeup of the territory in which you wish to place the franchised business. Not every concept will do well in every location. Sometimes the success of a concept is a matter of good timing, whether because of current trends or the economy or even changes in the population density or makeup.
This brings us back to the question of whether the residential landscaping franchise that does so well in Phoenix, Arizona, will do equally well in Raleigh, North Carolina. Professional landscaping could be seen as a luxury item, so you would want to be sure the average income of your population would support this type of purchase. You would also want to look for data on the number and value of single-family homes in your area. Ask the franchisor for names of franchisees who work in areas with a similar population to your proposed territory and find out how successful these franchises are with the concept.
Also, understand that great franchise companies do not want to put someone in an area to fail. That will be a blemish on their official record, The Franchise Disclosure Document. In the FDD, any failures or closures must be listed for two years after the closing.
In my opinion, a significant advantage to buying a franchise is that they have the financial resources and know-how to work with large marketing companies such as Buxton out of Fort Worth, Texas.
Buxton is a marketing company that breaks down every zip code in America regarding household income, demographics, and behaviors. The investment on the franchise company’s side is upwards of $100,000 per year to access this info. Also, they lay their demographic data over Google maps. They can show drive times and likely routes one would take to a designated address. Probably too expensive for the average mom and pop owner to acquire.
In any business, gut instinct and experience will go a long way towards helping you make important decisions. But when you are risking your own capital on purchasing a franchise business, be sure that you back up your instincts with research and hard data.
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