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How to Research a Low-Cost Franchise

Written by : Carol Tice
2009-07-15
You'll need to do some sleuthing to find out whether a particular low-cost franchise is really a good business opportunity and if it suits your own interests and skills. Many would-be franchisees skimp on research, making an emotional purchase because they personally use a service or like a product.

A key issue to research is how many franchisees have failed over the years. Talk to franchisees and see if they're enthusiastic about how they're treated by the franchisor, Siebert says.

It's also critical to understand what you'll be doing on a daily basis as a franchise operator. Many low-cost franchises, particularly homebased ones, are heavily sales-oriented. Siebert recommends you "ask yourself, ‘Am I comfortable selling? Can I sell this product or these services?'"

Elements of Success
When she looked into the Merle Norman franchise, April Walter decided she definitely could sell the 77-year-old beauty chain's products, which have a long-standing, loyal clientele. Though she had used the products herself, Walter, 36, didn't just automatically sign up; she compared several franchise concepts before concluding it was the best fit for her market and her skills as a former HR executive. She opened her Merle Norman Studio in a new regional mall in Macon, Georgia, last October for about $60,000 and projects first-year sales of $170,000.

Walter interviewed several franchisees before signing up and was comforted to learn the average tenure was more than 10 years. From frank conversations with franchisees, she learned what the costs would likely be and how long it could take to become profitable. Based on her research, she estimated it would take six months to a year to see a profit. But even in the down economy, she says she was close to breaking even after just four months, thanks in part to her highly trafficked location.

Strength in Numbers
Thorough research is more important than ever in a sluggish economy, says John Reynolds, president of the International Franchise Association Educational Foundation. It'll be hard work to land customers when consumers are skittish about purchasing, so you'll want a strong organization that supports your efforts as a franchisee.

"The basics are even more important now," he says. "If it's a small franchise, talk to every single franchisee. This is like becoming part of a family, and you want to know everything about them."

One good way to find out if a franchise offer is a strong one is to compare the offer with those of other franchisors in the same business segment. When Romero looked into tax-preparation franchises, he discovered some of the big names didn't have any franchises available. Others didn't do TV advertising, preferring guerrilla tactics such as sandwich-board ads. Instant Tax supported franchisees with a strong national advertising program that included TV and radio ads, and a national 800 number that would refer prospective customers in his area back to his store.

Once customers come, he says, they usually return the following year and tell friends. Franchisees told him to expect annual growth of 20 percent to 30 percent, but Romero says he's already seeing growth rates that are even higher. His own enthusiasm for the concept is also helping drive repeat business. "I found I like solving problems, putting out fires and creating wealth," he says. "I do that with every client."

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