Before doing anything else, the single most important thing to look at when figuring out how profitable a franchise location will be is to look at any competition in the area. Some stores and restaurants have done extremely well in tiny towns because they were the only real businesses in them. Likewise, some franchises with a great deal of traffic in major urban areas tend to fail because there are simply too many other companies to compete with. While you don’t want to opt for a location that’s not going to get enough traffic, you do want to be certain that there isn’t too much competition for your intended audience.
Granted, there is often a large enough of a market to benefit multiple different organizations in the same area. Around half of all retail sales are likely to occur at franchise locations. That alone should illustrate just how much business there is. Nevertheless, places that don’t have any businesses that are at all like a new one are among the most profitable.
Keep in mind that there is both direct and indirect competition to consider when opening a new franchise location. Direct competitors would be other locations that provide the same goods and services to consumers you plan on. These can make the profitably of a proposed location go down so sharply that some nationwide chains don’t allow two people to open the same franchise within so many miles of each other. Using a dedicated franchise business directory is a good way to keep tabs on this kind of thing.
Indirect competitors are those that offer somewhat similar services that aren’t otherwise related to what a particular franchise is selling. Say that someone opened a video arcade next to a bowling alley. In theory, these two businesses aren’t competitors because they don’t necessarily provide the same thing. On the other hand, there are only so many nights out a person can buy themselves each week so there’s a good chance that both businesses will end up competing with one another to a point. This is important to keep in mind when figuring out how profitable a location may be.
On the other hand, customers who went bowling may end up visiting the arcade afterward so there’s also the chance that such a location may end up being slightly more profitable than it may have been if it was located next to some other kind of company. Franchises located in a strip mall or power center may end up attracting more business via foot traffic than those that are in standalone locations.
Considering that franchises have generated over 8 million jobs, it’s highly unlikely that the industry will be going away. However, there are changes coming from various sectors and alterations to public transit services might have a big impact on the way that people do business with them in the coming years. Those who are calculating the relative value of any single location will certainly want to keep these things in mind.