Committing to a franchise concept is a big decision. You need to consider all of your options and weigh them carefully. After researching the pros and cons of each concept.
The problem is most people getting start in franchising don’t know what factors they should be looking at.
In this article, I’ll explain the key factors you can use to evaluate and compare franchise concepts.
Let’s get started.
Franchise Evaluation: External vs Internal Factors
First, we need to define what internal and external factors are, so you understand their benefit. They help us see the big picture of the franchise.
Internal factors are how the franchisor is structured and operates the franchise, including the relationship you will have with your franchisor.
External factors are the market environment in which your business will operate.
The 14 external and internal factors should help you:
- Understand many of the major facets of a franchise concept that could affect your business,
- Give you a sense of the areas you should be considering, regardless of the brand or industry, and
- Recognize what works for you, what does not, what you can live with, and what is non-negotiable as you evaluate.
You certainly can add, remove, or re-prioritize factors as you see fit. Use and adapt the seven external and seven internal factors of the evaluator to suit your needs and decide which factors are most important to you.
7 External Franchise Evaluation Factors
1. Market Size
What population are you serving? Is your market broad, niche, or somewhere in-between?
2. Industry Trend
Is the industry developing or mature?
3. Product & Service Drivers
What drives the purchase of the product or service? Is it a “need-to-buy” or a “want-to-buy”?
4. Real Estate Needs
What type of location, if any, is needed to deliver the product or service? If real estate is needed, are the requirements flexible or stringent?
5. Competitive Climate
Are competitors a major factor in operating your business? If so, is competition sparse or saturated? Will it matter to your business?
6. Regulatory Climate
Are the business’s products or services regulated, or do they require licensing? Will you or your employees require special licensing? If so, is the regulatory climate strict or lax? Will this affect recruiting employees?
7. Brand Recognition
See if you qualify for financing from the SBA for approved franchises.*
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How well would potential customers recognize the brand? Is it unknown or well-known? Is it emerging, fading, or static? Does it matter?
Understanding each of these external factors will give you a rough, back-of-the-envelope
way to know which factors are must-haves and which you can grant a little flexibility as you evaluate.
Also, if you identify external factors that don’t work for you with respect to a particular category or brand, there is no reason to move forward to consider the internal factors. It is time to walk away.
7 Internal Factors of the Franchise Evaluator
1. Operation Model
How does the franchise business operate? How does it make money? Are financial performance representations made?
2. Franchisee Role
What role is the franchisee expected to play in operating the business?
3. Franchising Experience
How experienced is the franchisor at being a franchisor?
4. Leadership
What is the tenure, background, and commitment of the franchise’s leadership?
5. Franchisee Engagement
How often and how well does the franchisor engage franchisees?
6. Financial Health
What kind of financial shape is the franchisor in?
7. Operational Systems
How developed are the systems on which you will rely to operate your business?
External factors shape the business you operate, internal factors effect how you operate. You will notice an interdependence between external and internal factors, just like the interdependence between franchisor and franchisee. Both sets of factors are important, and both are required to paint as complete a picture as possible.
Our free guide Franchising: Decoded and Demystified outlines the inputs and sources of information for each of the factors.
Download it here, or if you’d like a free concept evaluation using our Franchise Evaluator method, schedule one here.
