Location can make or break your franchise investment.
You could have the best franchise concept in the world. You could follow every operational guideline perfectly. But if you're in the wrong spot, you're fighting an uphill battle.
Here are five critical factors that determine whether a proposed franchise location will work for your business.
5 Factors That Determine if a Franchise Location is a Good One 1. Demographics that match your target customer. 2. Traffic patterns that support your business model. 3. Your competitors: direct and indirect. 4. The lease terms make financial sense. 5. Compatible zoning laws and local ordinances. |
1. Demographics Match Your Target Customer
Who lives and works near your proposed location?
This isn't just about population numbers. It's about understanding whether the people in your market area actually want what you're selling.
For instance, a high-end fitness franchise needs affluent residents who prioritize wellness. A children's education franchise requires families with young kids and an above average income. And a quick-service restaurant thrives on high traffic volume and time-pressed consumers.
Additionally, look at these important demographic markers:
- Household income levels
- Age distribution
- Family composition
- Education levels
- Employment patterns
When you’re trying to figure out if a proposed franchise location will be a good one, understand that no amount of marketing will overcome a fundamental demographic mismatch.
2. Traffic Patterns Support Your Business Model
Traffic counts matter, but context matters more.
A location with 50,000 cars passing daily sounds impressive. But what if those cars are speeding by at 65 miles per hour on a highway with limited access?
Consequently, different franchise concepts need different traffic characteristics.
Drive-through restaurants need easy ingress and egress. Retail franchises need pedestrian traffic and parking. And service franchises often need visibility but may not require heavy foot traffic.
Ask yourself:
- Can customers easily enter and exit your location?
- Is there adequate parking?
- Are traffic patterns consistent throughout the week?
- Do rush hour backups help or hurt your business?
Another thing you need to do is to personally visit your proposed location at different times. Morning rush, lunch hour, evening, weekends. Watch how traffic flows. Notice whether people can actually access your business or if they would need to navigate complex turns and intersections.
Remember, today’s consumers want the easiest way possible to get what they need.
3. Competition Creates Context
Competition isn't always bad. Sometimes it validates market demand.
Sometimes the question isn't whether competitors exist. It's whether the market can support another player.
For example, a pizza franchise might struggle as the fifth pizzeria in a neighborhood with a low customer count. But it might thrive as the second location in a growing suburb that has limited options and lots of potential customers.
How to evaluate your competitive landscape:
- How many direct competitors operate nearby?
- Are they established or struggling?
- What market gaps exist?
- Can you differentiate your offering?
Remember: Indirect competition matters too.
A smoothie franchise competes with coffee shops, juice bars, and quick-service restaurants. Map the entire competitive ecosystem.
4. The Lease Terms Make Financial Sense
Real estate costs can destroy an otherwise viable franchise location.
I've seen franchisees sign leases that practically guaranteed failure before they opened the doors. The math simply didn't work. And it’s tough to renegotiate a commercial lease.
Critical lease considerations:
- Base rent as a percentage of projected revenue
- Common area maintenance (CAM) charges
- Lease length and renewal options
- Tenant improvement allowances
- Rent escalation clauses
Tip: Never sign a commercial lease without having your franchise attorney review it. This isn't optional. It's essential protection for your investment.
5. Local Regulations
Zoning laws and local ordinances can derail your plans fast.
Maybe you've found the perfect corner with great demographics, excellent traffic, and reasonable rent. Then you discover the city won't approve the signage your franchisor requires. Or parking requirements exceed what's available. Or local regulations prohibit your operating hours. And more.
Local regulation due diligence checklist:
- Zoning permits your franchise type
- Signage regulations allow adequate visibility
- Health department requirements are achievable (if applicable)
- Operating hour restrictions work for your concept
- Special licensing is obtainable
Furthermore, some franchisors have site approval processes that include regulatory review. Others leave this entirely to franchisees. Know which situation you're in.
Finally, work with local commercial real estate professionals who understand your franchise’s requirements. Their knowledge of local regulations can save you months of frustration and thousands in wasted deposits.
The Bottom Line in Determining if Your Franchise Location is a Good One
Site selection determines your franchise success more than almost any other single factor.
That means you need to take your time with this decision. Rush this step and you'll regret it for the entire length of your lease—or longer.
Finally, in most cases, both parties the franchisor and the franchisee, need to approve the franchise location. So, choose well.
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This post was written by The Franchise King®, Joel Libava. He is the author of two books on how to buy and how to research a franchise and advises people looking to make a smart decision on a franchise to own.