How To Select a Location for Your Franchise Business
The location you choose for your franchise might just be what decides if it succeeds or fails. It’s not easy to correctly choose a location where your business might thrive. So, when scouting a location for your business you need to know exactly what to look for.
Read the main article: The Ultimate List of the Best Franchise Business Opportunities in the Philippines
Table of Contents
- Watch Video: How To Get Funding for Your Franchise Business
- At a Glance: Franchise Business Location Study Checklist (FREE PDF Download)
- What Are the Factors That You Should Consider in Choosing a Franchise Location?
- How To Select a Location for Your Franchise Business: 7 Steps
- 1. Ask the Franchisor if They Have Guidelines or Special Requirements for Choosing a Location
- 2. Shortlist Locations That Fit the Franchise Concept
- 3. Get Information From Lessors and Narrow Down Your List
- a. How much is the rent and what are the terms of the lease?
- b. What other businesses are leasing in the property?
- c. Are certain kinds of business or activities not allowed?
- d. Does the size fit the franchisor’s requirements?
- e. Do they have the electrical, plumbing, and telecommunication capabilities needed to run the equipment from your franchise?
- 4. Visit Each Location and Conduct a Study
- a. What is the foot traffic like in the area?
- b. What are the demographics (age, economic status, sex) of the people in your area?
- c. Does the foot traffic come from locals or from other areas?
- d. Are there establishments that bring in foot traffic to the area? (e.g. churches, schools, and government offices). Will this increased foot traffic be beneficial for your franchise or not?
- e. Is the location accessible?
- f. How visible will your franchise be if you put it up in this area?
- g. If you are relying on deliveries for income, what kinds of commercial and residential units are in the area? Do they require special permissions for promotions or deliveries?
- h. Are there the same franchises in that area? What are the franchisor’s rules regarding nearby franchises and area exclusivity?
- i. Who are your competitors in the area?
- j. Are there any rules or regulations in that area that may impact your franchise?
- k. Are there any developments in the area that may impact your franchise business?
- 5. Using Your Location Research, Conduct a Sales Projection for Your Potential Location
- 6. Send the Shortlist of Locations to Your Franchisor
- 7. Negotiate Your Lease
- Tips & Warnings
- Frequently Asked Questions
Watch Video: How To Get Funding for Your Franchise Business
At a Glance: Franchise Business Location Study Checklist (FREE PDF Download)
Conducting a location study? Click here to download our free checklist of guide questions. It will help you create a shortlist of potential locations for your franchise business. To further help you make an informed decision, don’t forget to read the full article below.
What Are the Factors That You Should Consider in Choosing a Franchise Location?
Here are some things that may affect your franchise depending on the location you chose:
- Foot traffic and accessibility mean a steady flow of people should be able to see and access your store as they need it. It has a direct impact on your sales.
- Rent costs are part of the fixed expenses that you need to cover monthly before you make a profit.
- Nearby stores could directly compete with you and eat up your share of the market. Note that some stores can also complement your business and even increase your sales.
- Curfew, zoning, and other restrictions can have a direct negative effect on your store if they don’t allow you to operate normally.
- Developments can be either beneficial or detrimental to your store’s success. For example, the development of a subdivision near your location can increase your client base. However, if a mall opened up nearby, foot traffic in your location may suffer.
How To Select a Location for Your Franchise Business: 7 Steps
1. Ask the Franchisor if They Have Guidelines or Special Requirements for Choosing a Location
Assuming that you already have a franchise in mind, you should contact them if they have any guidelines or special requirements. For example, a spa franchise may require a quiet location.
Ask them as well what kind of support they can provide. You can use their knowledge of previous successful locations so you can make an informed choice.
Another consideration is that some franchisors want to be the ones to choose the location themselves. However, this is a very rare scenario. Ultimately, the responsibility of selecting a location will fall on you, the franchisee.
Warning: If a franchisor is not strict with their location requirements, then you might want to reconsider pursuing a franchise with them. Check out our guide on how to choose a franchise here.
2. Shortlist Locations That Fit the Franchise Concept
There are many kinds of franchise concepts, and they won’t match just any kind of location. For example, it’s probably hard to imagine an education establishment that’s adjacent to a bar, right?
So, when creating your shortlist, be mindful that the locations fit with the concept of the franchise that you’ve selected.
3. Get Information From Lessors and Narrow Down Your List
Armed with your list of locations, contact each of them to get further details such as:
a. How much is the rent and what are the terms of the lease?
This is important because rent has a huge impact on the profitability of your business. If it doesn’t match your budget or objectives, cross them off the list.
b. What other businesses are leasing in the property?
It’s important to know if you have any direct competitors on the property. But not only that, there are some businesses that just don’t mesh well together. For example, a pet store, with a variety of live animals for sale, has a strong smell. If you’re planning to open a restaurant there, the smell might turn away your potential customers.
c. Are certain kinds of business or activities not allowed?
Certain businesses or activities may not be allowed because of local regulations or the preferences of the property owner. For example, the lessor may not allow water stations because it interferes with the supply of water for the whole property. If these restrictions will hinder your operations or promotions, you should cross them off the list.
d. Does the size fit the franchisor’s requirements?
More often than not, your franchisor already has an idea of the minimum allowable area where their franchise can operate smoothly. If the property does not have a space that fits those requirements, remove them from your list.
This is often overlooked by beginner franchisees. Even a simple food cart can have a lot of electrical appliances. For example, if you have an electrical deep fryer, grill, food warmer, rice cooker, and juicer in your food cart franchise, that’s already 5 electrical appliances. In busy hours, you might need to run them simultaneously. If the property’s electrical system cannot handle that load, then your operations will come to a halt.
4. Visit Each Location and Conduct a Study
After talking with your potential lessor, you probably have a narrower list of locations now. Next, you need to visit each of them for research. This is called a location study. You need to find out:
a. What is the foot traffic like in the area?
Depending on your chosen franchise, you may need to check the foot traffic for different days (weekdays and weekends) and different times (morning, afternoon, and night). Your chances for a successful franchise will usually increase if there are more people visiting your area.
If your business does not rely on foot traffic, then you can choose a space that is less populated and has cheaper rent.
b. What are the demographics (age, economic status, sex) of the people in your area?
Excellent foot traffic does not mean automatic success. The characteristics of the people visiting your location must match your franchise’s target market. You should observe them and note which age, sex, and economic status are most prevalent.
An example of a mismatch would be opening a meat shop in a place that’s primarily composed of students. They don’t make the decisions about what food is served in the household. So, if there’s heavy foot traffic but it does not match your franchise concept, then look elsewhere.
c. Does the foot traffic come from locals or from other areas?
This is another case where matching your franchise’s target market to the actual people in your chosen location is important. For example, you open a home service business. There are a lot of people passing by your store but very few live in your coverage area, so you can’t offer your services to them.
Having establishments that bring in people to your location is almost always positive, especially if they match your target market. However, there are times when they can be a hindrance.
For example, people going to government offices may need to park for a long time. They’re stuck in lines so they can’t patronize you. And due to their vehicles being stuck in the parking area, other people who may want to do business with you can’t, because they can’t park. They’ll have to look elsewhere. This brings us to our next question.
e. Is the location accessible?
Being accessible means people can drop by your store any time that they want to. Like in the previous example, a disastrous parking situation could prevent that.
Another thing to keep in mind is public transportation. Not everyone has vehicles and if the potential location is situated in an area that is difficult to access by public transportation, then it might be better to cross it off your list.
f. How visible will your franchise be if you put it up in this area?
Being visible is important because it helps your potential customers become aware that your store exists. You should check if there’s anything that may block your signage or store if you put it up in your potential location.
It’s tempting to think that being located next to subdivisions, offices, and condominiums means that you will automatically get them as clients. However, the reality is that they all have their own rules about who can come in and what they can do once inside. You should ask them if they have rules that can make it difficult for you to do promotions or deliveries.
If you find the same franchise in the area you scouted, then you need to talk to your franchisor. Most of the time, they require similar franchises to be a specific distance away from each other, so they don’t interfere with each other’s business.
i. Who are your competitors in the area?
You need to find out which stores in the area will be competing with yours. They are a valuable source of information, and you can actually use them as a benchmark.
Find out if they are performing well. If they are not, find out why. If the reason they are not performing well will also affect your franchise, then you might want to reconsider this location.
j. Are there any rules or regulations in that area that may impact your franchise?
If you had a franchise that gets most of its income at night (e.g., cybercafé), then a curfew in that area will be disastrous to your business. Other rules to watch out for include zoning and noise.
k. Are there any developments in the area that may impact your franchise business?
The development of transport terminals, for example, would be beneficial as it brings foot traffic to your franchise. But what if the terminal was moved to another location? That would be bad.
Of course, it’s not easy to predict what developments will happen. Just make sure to keep yourself informed about what’s happening in your area.
5. Using Your Location Research, Conduct a Sales Projection for Your Potential Location
Now that you’ve done your research, it’s now time to do some math so you can determine if you will be profitable or not in your potential location. A sales projection is a simple estimate of how much you can sell monthly and daily. You can use your foot traffic data or your observations of people to project an amount.
You can also put yourself in the shoes of your target customers. Start by picturing their day, how they’ll encounter your store, and what they’ll experience. How many of these people do you think will come to your location?
Another way to do a sales projection is to get data from your competitors. To get this data, you can either watch them and count how many people bought during a certain period; or ask the store attendant directly. If by doing this, you find out that your competitor has 30 paying customers daily, then if you can achieve the same, what is your profit? Will it be enough to cover your expenses?
You can check our guide here on how to compute your monthly and daily target sales to be profitable.
If you are planning to get a business loan, then adding a sales projection to your business plan will help get your loan approved.
6. Send the Shortlist of Locations to Your Franchisor
If you have found a few locations that you think will be profitable for your franchise, then it’s now time to share them with your franchisor. It would be ideal for you to have 2 or more options for the franchisor to consider. So, if a location is rejected, there will still be other options available.
In the process, you might also want to discuss your observations about the location, as well as your sales projections. Make sure to get their input. With their experience, they may have insights regarding the performance of franchises in similar locations.
7. Negotiate Your Lease
Once you get the go signal from your franchisor, contact the lessor to talk about your lease. Here are some of the things you might want to negotiate:
- Price of rent. This is one of the largest contributors to the fixed costs for your franchise. It would be terrific to get it lowered, but do note that most lessors won’t budge on this.
- Price lock-in period. Lessors may reserve the right to change the rent price as they deem fit. However, you can protect yourself from this practice by negotiating a fixed rent price for a certain period of time.
- Terms of the lease. The terms of the lease include the amount of deposit and the advance payment. This is money that you might need in the initial stages of your franchise. So, if you can negotiate less burdensome terms, you can use that money to promote or sustain your budding franchise.
Of course, some lessors are just inflexible when it comes to the lease. This is especially true for establishments such as malls or offices where you are not talking to the decision-makers themselves. In those cases, go back to your numbers. If you can’t reach your target profit, then it would be better to choose another location.
Tips & Warnings
- Ask your franchisor about the kinds of locations and markets where their franchises have found the most success. You should use their experience to your advantage when you are researching locations as well.
- Don’t rush your decision. You might be tempted to settle for any location that is approved by your franchisor, but that does not guarantee success. If you have any doubts, you can go through the steps again.
- Don’t skimp on your research. It’s not easy to come up with an answer for each of the questions that will determine the right location for you. But it will be beneficial for you to work through it in the long run.
- Once you’ve chosen a location, it might be beneficial for you to join local business organizations where you can network with other business owners. Not only will you build awareness for your business, but you can also keep yourself up to date on the developments in the area.
Frequently Asked Questions
1. What are some beginner mistakes that people make when choosing a location?
Here are a few common mistakes:
- Trusting the franchisor’s recommendation without doing any research. There are franchisors that are only after your franchise fee. You can spot them because they don’t even bother checking your location. You can also feel them rushing you to make a decision.
- Not doing enough research on the location. There’s a lot to consider when choosing a location so it’s tempting to just go with your gut. However, even your gut needs more information to make a proper decision. Make sure to give it all the information it needs.
- Rushing the decision to choose a location. The excitement of starting their own business can make people rush many decisions, including the choice of location. This can lead to a bad investment that you might regret later.
- Not doing a sales projection. There are people who think that math is their enemy. But in this case, it will be your best friend. A sales projection will help you determine if your goals are achievable in this location, so you shouldn’t skip it.
- Not negotiating their lease. You might hate the idea of negotiating, but you won’t hate it as much as you’ll hate rent. Rent is one of the largest fixed costs that you will need to pay monthly. It impacts your cash flow and profits, so negotiate for a better lease. Every centavo matters.
2. What are the pros and cons of choosing a mall as a franchise location?
The benefits of a mall location are as follows:
- High foot traffic and visibility
- Management takes care of security, parking management, and facility maintenance
- Businesses become part of mall marketing campaigns
- Certain mall brands have a reputation that you can benefit from
However, there are also cons to choosing a mall location, including:
- Mall spaces are typically more expensive
- Malls have restrictions in what they allow you to design or construct for your store
- Need to follow mall opening and closing times
- Malls are full of competition
You have to determine if the benefits of the particular mall you’ve chosen will outweigh the cons. If after doing your research, you determine that it won’t be profitable, then it’s better to choose another location.
3. If your franchise is located in a commercial area with high foot traffic, does it guarantee success?
No. Your franchise concept also needs to match the market in that location. Here’s an example of a mismatch. Let’s say you open an automotive repair shop without checking your market. Then you find out that the majority of the people in that area don’t own vehicles. It will be very difficult for you to get clients in a market like that.
Go back to the main article: How to Choose a Franchise Business (Plus Updated List of Best Franchise Business Opportunities)
Rod Michael Perez
Rod Michael Perez is a freelance writer with over 7 years of experience in writing long-form articles, ad copy, and SEO content for local and foreign clients. He is also an aspiring startup founder and believes that the Philippines could be the next hub for startup culture. He takes care of his dog, a poodle-Shih Tzu hybrid, in his spare time.
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