Choosing a Franchise: Assessing the Market
More questions on running a franchise? Find out here
More questions on running a franchise? Find out here
The process of choosing a franchise requires you to assess many aspects that will influence your ability to succeed as a franchisee. The focus of this article is to cover what you should assess when analysing any potential market of interest, for your franchise opportunity. You must be operating in a market that suits you personally, to ensure that any market fits you, for this we suggest you read our Understanding Yourself article, before you begin.
If you have identified some markets that suit you personally, then you are ready to start analysing what markets are healthy and present you with the best chance of success. When choosing a market to operate in, you must consider its current market performance and whether or not it has a healthy prospect for the future. For this the first step in analysing the market, you will need to find an unbiased view of the market, and industry reports are the best place to start.
Here at Start Your New Franchise we have completed some of the work for you – Franchise Industry Reports
We would also strongly recommend that you conduct further research, as this franchise opportunity will often take up to or more than 20 years of your life and shouldn’t be selected until you are sure that the market will still be thriving in 20 years. The areas we suggest you pay particular focus on are:
UK & World Turnover
This is the first step as you need to know how much money is being generated in this industry already. The UK may not necessarily be at the forefront of advancements within your industry, so it is important to collaborate turnovers for the UK and the rest of the world for comparative purposes. If both are healthy you needn’t worry, however, if the UK has a significantly higher proportion of turnover than it should represent then you need to investigate why this is. For example, if other countries are utilising a new technology that decreases the demand of an existing franchise market then in the coming years this advancement could be utilised by UK companies, thus, decrease future demand in your market.
The profit margins, that companies within your market make, will be at a similar rate as to what you can expect to make. This may not be presented in industry reports and might require you to conduct further research at a company level, as it is an important metric.
The profit or profit margin trend will highlight some issues that you might face. A decreasing profit margin can be a great concern; for example, UK farms are struggling to supply produce at the same cost as those sourced internationally, thus supermarkets are importing products instead. To combat this, farms are having to drop their prices and are struggling to make a profit. This clearly shows that opening a new, unestablished farm in the UK is a significant risk in the current global economic climate.
Total Companies & Employees
The total amount of employees and companies in the market should be compared to previous years to identify any trends what are occurring. Then, you will need to investigate why this is, as some may offer understanding as to how successful you could be.
If the total amount of companies is increasing year on year, this would suggest that the market is healthy, however, there is normally a crunch point where every market will become saturated and with an increase in companies - it means less share of demand per company. This could be an indicator that it is possible to succeed in this market but, you will need to be very financially savvy and competitive.
If the number of employees is decreasing but the number of companies isn’t, this would demonstrate an advancement of some kind of automation, or outsourcing where you no longer require such a large workforce. This is often a good sign of the market, as it could be through utilising technology to improve the profit margin of your company.
If the total amount of companies is decreasing but employees are on the rise, then investigate why this is. It could be that the top performing businesses within that sector are prospering, however smaller businesses aren’t able to be competitive and failing, which could be for a number of reasons.
Exporting is a huge market in the UK, as we utilise many trade agreements that present a clear opportunity to generate profit by trading outside of the UK. This is a strength for the market and it reflects the high quality of our products and services, as people will generally only import when a product is better or it’s a cheaper alternative, when similar businesses/services exist in their native country. If no export exists, it could be that your product/service isn’t suitable for export, however, investigate the reason as it could present a negative issue.
The main problem with being in an industry that receives a lot of demand internationally is that if trade agreements change, fuel rises, or any other relevant external factors change, then you could see a significant shift in demand. With the current uncertainty of Brexit, this is a hot topic for those who export/import.
To truly understand the market and the prospect of it, you must look further than the market itself. Most aspects of global trends wont significantly affect your market and shouldn’t be a concern, however, every market can be affected by external factors and you need to understand what it is that might affect yours.
Firstly, look into what you are selling, how it’s sourced and what affects it. Once you have identified this, investigate what trends are occurring for these; this will present you a good understanding of what changes you can expect in the future.
The other aspect that needs to be considered are the customers; every franchise will have a targeted demographic that they predominately sell to and these are your key customers where your focus must lie. Analyse the consumers of your market, look into their need for your product, analyse their expendable income and look at the prospect of their future as well. This is because if your consumer market is going through a particular hard time then they will restrict their spending where they can, which will often lead to a detriment of your business.
If you would like some example areas of external factors that might affect your chosen franchise opportunity the take a look at – External Factors of Franchising
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