What Is the Most Profitable Franchise for You to Own?
When you buy a franchise business, you’re following in the footsteps of many franchisees who are trading under the same brand and operating the same business model in other locations. Their success is an indication of how successful you could be. But it’s no guarantee – even if the franchisor quotes a typical ROI of its franchise business.
There are too many factors to guarantee a specific return on investment (ROI). There’s location, for a start, and the number of potential customers. There’s your expertise and experience, and the quality of staff you hire. There’s the cost of financing your business, which can vary immensely and have a big impact on profitability. Even your personal business goals can affect your ROI.
The question is, how do you obtain the best return on investment franchise money and avoid the biggest mistake you can make when calculating the ROI of your franchise?
Five Questions to Ask Before You Buy a Franchise Business
Many first-time franchisees start a business to change their life. They want to get out of the corporate world, away from a boss they dislike and have more freedom to do the things they really love. None of this is possible if your business isn’t making a reasonable return. And the better the return, the better the lifestyle your franchise business will deliver.
In our experience, answering these five questions builds the foundation of a highly successful franchise business:
Which industry do you have the most experience in, or interests you enough to learn fast?
The more experience you have, the more effective you will be. The more interest you have, the more passionate you will be.
Which industries are currently growing in demand ─ and which ones have the potential to remain in demand?
You want customers to come through your door and purchase your products and services. Therefore, you must look for an industry in which you can not just put your experience and passion to good use, but one which people need or want. You also should invest in a business that will continue to be in demand, even when the economy is weak – there are plenty of recession-proof franchise ideas.
Which industries lack a significant footprint in your area?
An industry may benefit from high demand, but this demand may not be profitable if there is a tough competition where you want to open your business. Do your research, investigate your competition, and make sure that there is a gap in the local market that you can exploit.
How far are customers willing to travel for your products or services?
The further that people are willing to travel to buy your products or services, the wider will be your target demographics and area of research. Remember, the bigger a slice of the population you can attract, the bigger your potential customer base.
What is your budget?
You’ll need to determine how much you can invest to buy a franchise business, remembering that the amount you borrow affects the return you can make (because interest eats into your profits).
Three tips to increase your potential return on a franchise business
While the answers to the above questions will help you identify the franchise that should give you a great return, these three tips will help you to maximize your ROI:
Base your projections on reliable information
You’ll find a lot of information in the Franchise Disclosure Document (FDD), but you shouldn’t base your decision to purchase a franchise solely on this. You’ll need to conduct meaningful research, and speak to other franchisees. As an experienced franchise consultant, New Ground Consulting shares its knowledge with potential franchisees. We can also help to put you in touch with other franchisees, as well as help you navigate the myriad of franchise opportunities available.
Hope for the best, prepare for the worst
Proper business planning will help you maximize your return, but should also be realistic. A mantra that we believe all business owners should follow is to hope for the best and prepare for the worst. This way, you’ll always have contingency plans in place should something go awry – and this will help you to avoid the worst of the fallout of worst-case scenarios (such as the pandemic).
Never assume you are going to do better than existing franchisees or that your market is superior
Don’t let your real potential be consumed by overconfidence in yourself, your team, or your market (location).
Which franchise gives the best return on investment?
In summary, the franchise business that gives the best return on investment is the franchise that:
Dovetails with your passion and experience
Provides products or services that are in demand and will remain in demand
Does not suffer from excess competition in your business location
Is priced within your budget
Even when all these factors line up, you should ensure you conduct exhaustive due diligence, implement detailed and proper business planning, and keep your ego in check.
Take the anxiety out of making the best return on your franchise investment. Book a free consultation to discuss your business goals and franchising objectives.