The Secret To Finding the Right Markets for Franchise Growth

One of the most important factors for a franchise brand of any size looking to grow is deciding where to focus expansion efforts. Sure, identifying a brand’s ideal franchisee may be step one, but how do franchisors decide where to look for those prospects? 

When developing a franchise growth strategy, identifying target markets is a must. Here are some of the secrets to finding the right target markets for franchise growth.

Research the Demographics of Each Market

First, franchisors need to research the desired markets and determine if there is a need for their consumer offering or business model. 

For example, brands need to ask themselves how the demographics (population, income, education, etc.) match up to their targeted audience. Simultaneously, and especially in today’s environment where the economic downturn caused by the COVID-19 pandemic is resulting in mass closures, franchisors need to do thorough research on their competition in the targeted markets. 

When choosing specific areas to prioritize, it is critical that validating markets — or areas with an established brand presence — also exist in each targeted region. If validating markets do not exist, the franchisor should select specific markets that are best suited for their brand or product and develop them as future validating markets. 

“Find out what differentiators you have or can easily implement,” said Jesse Curry, vice president of franchise development for Eat the Frog Fitness. “For example, some of the features that may work particularly well in a market include on-demand video, drive-thru lanes, 24/7 access, in-home services, stand out pricing, customer service, rewards program or other defining characteristics. If allowable, secret shop them yourself or hire an agency, especially if targeting multiple markets in a region.”

Know the Consumer Intimately

Perhaps the most important factor to focus research efforts on is the consumer. Franchisors need to ensure there are enough qualified households to buy the product and make the franchisee successful. 

“Some of the best franchisors are in the business of data collection and analytics. They need to know their target demographic and ensure that any territory they are going to expand into has enough of their common buyer,” said Corey Elias, founder and franchise consultant at Franchise Capitan. “Still, one big hurdle to beware of is solely relying on the data. Each market has unique intricacies that the brand should do their best to understand.”

When it comes to choosing a specific area or site, franchisors should also consider consumer traffic patterns.

”Is there an on and off-ramp or ease of getting in and out of the business park? Does your business cater to day, evening or both traffic opportunities? In most retail businesses, it is all about location, location, location,” said Curry. “With online shopping, COVID-19 and possibly a depressed real estate development period, suddenly today’s real estate environment can favor the tenant and save thousands of dollars over the life of the lease.”

Dennis Campbell, vice president of franchise development for Big Blue Swim School*, noted that site selection is one of the most important decisions in the franchising process. “Franchisors should aim to put partners in the best possible area as opposed to chasing cheap rent,” he said. “That inherently means it may take a little bit longer to validate and approve a site, but taking that time is essential. Adding an extra two or three months into site selection is going to give franchise partners 40 years of benefits.”

Analyzes the Market’s Labor Force, Distribution Model and Economic Outlook

Beyond the consumer, there are several other factors that can determine a good market for franchise growth. “Other factors that come to light include the labor force and economic outlook,” said Curry. “This will depend on the type of service you are offering. What are your needs, and what wages will it take to attract good people? More importantly, what will it take to retain your employees?”

If the business relies on vendors or any distribution, franchisors also need to make sure that those vendors work in the new target markets. “It is important for a franchisor to ensure they have enough operational support in their back office to handle the growth as they expand into more markets,” said Elias. “This will set up their franchisees for success.”

Since each market will be a little different, a decision to grow in a particular area should be made on a market-by-market basis. These decisions are critical if a franchise hopes to avoid wasted resources and effort. 

Start Marketing in the Area

Identifying the right target markets is only the first step. Next, franchisors should implement several strategies to get the word out for both consumers and prospective franchisees in the area. 

“Building brand recognition in a new market is a cross-section of luck, referrals, excellent business practices, digital and local marketing, remnant radio, high customer promoter scores, great products, excellent service, partnering with like businesses, community involvement and more,” said Curry. “When entering a new market, franchisors need to find the one significant thing (or more) that separates their brand from the competitors and promote that. That’s what customers are looking for: differentiators.”

The consumer isn’t the only one looking for differentiators — prospective franchisees also need to have a reason to check out the brand. According to Elias, the best place to start spreading the word about the franchise opportunity is through current franchisees. 

“If you are building the system correctly, current franchisees will be your biggest advocates and would love to help grow the brand,” he said. 

There are plenty of ways for franchisors to generate local leads, including portals or pay-per-click digital marketing. Events organized by the International Franchise Association are also strong tools for use in lead generation, especially with local and regional franchise groups. 

Franchise brokers can also be an incredible tool for growing franchise brands that are entering a new market. The job of a franchise broker is to find and advocate for franchise candidates in a certain area and help to match them with great brands that fit their lifestyle and financial goals. In addition, brokers can guide franchisors and show them where there is a high level of qualified candidates or potential for growth. 

Grow for the Right Reasons

Overall, the worst thing franchisors can do when trying to grow is spread themselves too thin. “Brands need to have specific growth goals and focus on them,” said Justin Gordon, CEO of Amramp. “Pick one or two markets and commit to them. Don’t get distracted and listen to the noise of doubters or people who don’t have the brand’s best interest at heart.” 

On the flip side, franchisors shouldn’t expand just for the sake of making business headlines or boasting to friends and colleagues — just because you can grow, doesn’t mean you should. 

“Before diving into certain target markets, franchisors should dial into all the areas where they can improve, such as franchise training, staff training, hiring the right people, improved digital and social marketing tools for your franchisees,” Elias said. “Heed the warning signals of under-performing franchisees and immediately address them before expanding into uncharted territories.”

By understanding the customer, evaluating the market and optimizing the business model, franchisors will be better prepared to bust out the map and start building some successful franchise locations.