Chapter 12: Franchise Expansion Strategies

Franchising is an excellent way to effectively expand a business, but it requires time and careful planning. In order to prepare for growth via franchising, it is crucial that businesses develop a comprehensive strategy and establish both short-term and long-term plans.

Here are some steps to consider when creating a franchise expansion strategy.

Identifying the Best Markets for Franchise Growth

Franchisors should first conduct thorough research on their desired target markets and carefully select the starting point for expansion. Identifying target markets can depend heavily on the type of franchise. Let’s use Happinest Brands as an example. Eric Martin, the senior vice president of franchise development, noted that because their brands are in the arena of home services, homeowners are the target customer. 

“We look beyond just the number of households of course, as not every homeowner is an ideal target for certain types of home services,” he noted. “We look specifically at the number of stand-alone, single-family homes that fall into the top 20%-, 40%- and 60%-income levels based on that state’s median income levels … We need to see an opportunity to create dense clusters of customers within a reasonable time frame for an area to make sense for us to develop with a franchisee.” 

Meanwhile, it is also common for franchise brands to initiate their expansion efforts in a state where the brand originated or where they have already established a modest customer base. 

“Young franchise brands need to grow around where they are based,” said Blair Nicol, CFE, vice chairman and principal of FranNet told 1851 Franchise in 2021. “If a franchisor is based in Portland, Oregon, for example, the first few franchisees need to be in the Pacific Northwest to promote regional growth.”

Nicol added that a legal team can also advise franchisors on where to grow in the United States, based on registration states and competitive threats. 

Evaluating Different Growth Models

Brands should also evaluate different growth models before franchising. This means deciding if they want to focus on single-unit, multi-unit, area development, master franchising or a combination. This also depends on the model, Martin noted, as well as the short- and long-term goals of the franchisor. 

“It might feel good on the front end to know you have sold out a larger market to one person,” he explained. “But long-term, will it be fully developed and penetrated as you had expected? Certain models are more conducive to multi-units or master franchising. In my experience, home service models depend highly on localization and customer service.”

Martin added that Happinest Brands believes in developing one to two territories at the start to allow an owner to go deep in their area and really learn the business before getting too wide of a reach. However, each franchisor will need to examine their business model individually to figure out the best course of action for them. 

 Monitoring and Adjusting Expansion Strategies

Once franchisors decide to implement a growth strategy, they will need to monitor it and adjust when necessary. This includes evaluating franchisees and having open conversations with them. 

“Generally, a good franchisor is having multiple conversations throughout the year with their franchisees and can put plans or goals in place that will help owners get in position to expand thoughtfully, and at the right time,” said Martin. “We are all guilty of having eyes bigger than our stomach at times, but it’s the responsibility of the franchisor to ensure a franchisee is not left in a position feeling they bit off more than they could chew.” 

With the right target markets, growth models and careful evaluation, franchisors can create a strong growth strategy and plan that will help them expand far and wide.