4 Key Factors That Determine the Potential Success of a Franchise

woman writing
••• Buero Monaco / Taxi / Getty Images

The thought of being your own boss, controlling your own destiny, and realizing a slice of the American dream through business ownership is an attractive prospect for many of us. However, many of us aren’t quite sure how or where to start. One path to small business ownership is to invest in a franchise.

Acquiring a franchise, the process of purchasing a licensing agreement for a specific product or service from a franchisor, can be an inexpensive way to start your own business.

In fact, being a franchisee can greatly reduce the amount of costs and risks that come with opening a business.

Unlike going it alone, typically all of the support systems needed to have a successful business are included with the purchase of a franchise. The components required in a business plan such as financing, marketing, operating, strategy and training plans are included with a franchising agreement. The process of developing a product or service to actually launching your business is significantly streamlined. 

Once you’ve done some research, take time to understand the fundamentals of franchising, and decide that it’s time to take the plunge into business ownership through purchasing a franchise, you need to decide what franchise opportunity offers you the greatest potential to succeed. What type of franchise should you consider? What factors should you consider? What questions do you need to answer to make an informed decision?

Here are several key factors that should drive your decision making process. 

1. Brand Recognition 

The greatest asset a franchise can have is an established brand. This will give you a customer base that already wants your product or service. Typically, building a client/customer base takes years and most businesses struggle to develop repeat customers.

With a well known franchise, you will have brand recognition and loyal customers from day one which increases the likelihood for success.

The key to success here is learning how to leverage an existing brand recognition for broad appeal, while differentiating your franchise just enough to attract customers who may be on the fence. This can often be accomplished with above and beyond customer service practices.

2. Industry 

Most of us would like to do something we love or are passionate about, to turn a hobby into our career while being our own boss. Unfortunately, budgets usually do not allow us that opportunity. The good news is that there are industries that have low cost of entry. You will need to confirm that the franchise opportunities available, the budget and your desired type of work all meet expectations.

If a franchise opportunity you are considering is in an industry that is new to you, you will want to take time to conduct research into the industry itself. This should be considered beyond what the franchise owner provides to you; independent research is the best way to evaluate the industry.

3. Profitability

You need to make sure that you can verify that the business will achieve the financial results necessary to sustain your livelihood in the short-term and create financial security long-term.

Verify with other franchisees that their revenue and profit objectives are being achieved. You are going to be making a significant investment and taking risk and you want to earn a substantial return.  

After you have confirmed the profitability data on the franchise side, you will need to conduct your own financial analysis to determine if you have the capital required to buy into the franchise, and anticipate being able to bring in enough revenue to cover operating expenses and the fees you will owe the franchise owner, and then still be able to profit.

4. Sustainability

In addition to being financially viable, your franchise needs to survive.  Look for franchises that have been in business for a decade or more or have tremendous growth potential. Your objective is to be a business owner and achieve long-term financial security so a highly trendy franchise or one that is very seasonal may be challenging if you're looking for long-term success.

While there are other things to consider, such as the legal terms of the franchise agreement, the required investment, and the earning potential, the considerations listed above will help you qualify a franchise opportunity early in the process.