Will a Franchise Work in My Town?
by Rick Bisio – Franchise Consultant & Author of the Franchise Book –The Educated Franchisee
There are several reasons why a franchise that is successful in one town could do poorly in another. In numerous cases the difference is the consequence of the franchisee’s abilities and attitude – in some other cases the difference is in the franchise’s territory size, population density, and/or demographics.
It is necessary, as part of your franchise education, to compare your franchise territory to other territories in the system. Here are some special areas to look into.
Total population numbers
The majority of franchises are sold by territory. The franchisor fixes the territory size needed to support that particular franchise. Diligent franchisors will not knowingly sell a territory that doesn’t have the population numbers to support their franchise. But they will sell territories that fit their minimum criteria. If you are purchasing one of those marginal territories, you want to find out that up front, and you want to find out if the territory size is likely to increase or decrease in the foreseeable future. Ask the franchisor for the names of franchisees whose territories are similar in size to the territory you are looking at. Call them and determine how successful they are.
Ask the franchisor for the standard radius for appealing customers. Is it 2 miles? 10 miles? Then ask for the names of franchisees who have population densities comparable to the densities in the territory you are looking at. Call them to find out how successful they are.
A futurist named Andrew Zolli summed up the importance of demographics:
“You can’t understand the future without demographics. The composition of a society – whether its citizens are old or young, prosperous or declining, rural or urban – shapes every aspect of civic life, from politics, economics, and culture to the kinds of products, services, and businesses that are likely to succeed or fail. Demographics isn’t destiny, but it’s close.”1
When you examine the demographics of your territory, you will be weighing a number of factors, potentially including gender, race, age, income, disabilities, education, home ownership, number and value of single-family homes, and employment status.Will your franchise draw a broad demographic or does it have specific appeal? If the franchise assists a market segment – say students, wealthy homeowners, or small business owners, for example, does the territory you’re looking at have enough of those customers? Is their average income and education level in-line with the franchises typical customer’s income and education? Ask the franchisor which territories are similar in terms of demographics. Call them and find out how successful they are.
Do Your Own Research to Get the Best Franchise Information
As well as talking to existing franchisees, do your own research on current and projected population totals, population density, and demographics, including economic trends. You should be able to find information on line. Go to your local reference librarian to learn what s/he has available. In addition, your state could provide free services.
Don’t do the mistake of founding a franchise buying decision on your degree of enthusiasm or on what you personally believe will work. Make certain you own a market, and that the market is anticipated to stay the same or improve over the next 10 years (10 years is an usual franchise contract term).
If you are prepared to work hard, becoming a franchise owner can help you attain your financial and lifestyle goals. Just be sure to eliminate as much risk as possible. Do your research before you sign on the dotted line.
1 Andrew Zolli, “Demographics: The Population Hourglass,” Fast Company Magazine, March, 2006.
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