Successful franchises start off with a sustainable business model, utilizing costs savings and setting up shop at great locations to achieve a desirable level of market saturation. Let’s take a closer look.
1. Staying In Business
Franchise success is typically measured by the amount of franchise units under the system. The more franchise units there are around, the more successful the franchise will be perceived, and this translates to more a attractive franchise opportunity for prospective franchisees. But in order to do so, a sustainable business model must be in place to ensure all units under the franchise system could make an adequate profit that keeps the doors open.
2. Saving Money
Economies of scale are achieved through bulk buying. The larger the order, the more franchises can negotiate a better rate with suppliers, thereby benefitting everyone in the system with lower costs of goods.
3. Being Seen By Customers
As with any brick-and-mortar business, location plays a major role in connecting with the target customers. A mediocre product with a great location could out-perform a great product with a mediocre location. Franchises, having a bigger reputation and being in business longer, will provide landlords with more potential for stability and this could be a negotiating platform for exploring better locations. Established franchises could even be approached by the landlords to take up space, offering attractive rental rates.
4. Ability To Grow
When a franchise has a low level of market penetration for a specific territory, there is more space for growth, meaning there is more potential for franchise units to be set up. On the other hand, when a territory is saturated with franchise units, setting up additional franchise units might lead to everyone in the territory looking at a smaller share of profits because each market has a limit to how much it can bear.