Franchising Market Research 101 – A Complete Market Research Guide for UK Franchisees

August 15, 2018

Thorough market research can pre-empt many problems – from securing affordable finance to maximising the returns on your investment. Learn more about franchise market research in this complete franchise4u guide tailored for novice UK franchisees.

So, you’ve finally decided to give franchising a serious try. You’ve started looking at various opportunities, talking to people-in-the-know and spending hours reading about the challenges, methods and success stories. But where does the preparation stop, and the work begin? How do you find a good franchise opportunity? How do you research the market, grab the numbers and analyse them to draw valid conclusions? Isn’t this all much too confusing, if not downright disorienting?

If it makes you feel a little more at ease, there are thousands – if not tens of thousands – of people like you who know what they need to do but have no idea how. In case you still haven’t familiarised yourself with what franchising is, how it works, why it’s on the rise in the UK and everything else would-be franchisees need to know, do visit and bookmark our free franchisee guides. Once you’ve gone through all of them, you’ll be more sure-footed about whether franchising is a good choice for you and the amount of hard-work, dedication and perseverance it takes to make a franchise profitable.

Once there, do come back to this page – and everything that follows below will make a lot of sense to you.

So, let’s get started!

Franchising Market Research – The Importance of Getting It Right

Running a business is, at the end of the day, all about staying on the right side of the numbers. If you can make numbers work in your favour, you’ve won the battle and you’re well on your way to winning the war, as well. That, perhaps, is the best way of saying that market research matters – a lot.

“What is research, but a blind date with knowledge?”

  • William Henry

William Henry, one of the leading British chemists of all time, has said in less than ten words what we will struggle to say in a thousand. Research of every which kind, from the scientific and artistic to the academic and entrepreneurial, has only a few definite objectives to aim at – learning things, gathering data, finding facts, uncovering myths and getting one step closer to the truth.

Market research is not at all different in this regard. As a franchisee, the market research campaigns you conduct will tell you a whole lot more about the business than the franchisors are willing to let through. More importantly than learning the good about your future franchise business, you’ll learn the bad and the ugly. That, in our opinion, is one of the most significant benefits that franchise market research offers.

Benefits of Franchising Market Research

  • Better insights into the state of the market in terms of supply and demand
  • Better understanding of the target demographic
  • Better knowledge about the existent competition
  • Clearer grasp on numbers
  • Higher chances of being able to secure franchise finance

Now that we have established – in principle, at least – why franchisees must conduct market research, let’s move on to what it exactly is.

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What Exactly Is Franchise Market Research?

To understand what franchise market research is, we first need to understand the scope of business market research in general.

Researching a potential business opportunity invariably involves researching the market itself. A savvy entrepreneur with a brilliant idea could still get it all wrong by entering the wrong market or entering the right market at the wrong time. A typical business market research project will aim to shed light on the following:

  1. The market appetite – the interplay between the supply and the demand
  2. The purchasing power of the target demographic
  3. The inherent utility value of the product or service being sold
  4. The economic viability study
  5. The competition review/intelligence

As we mentioned earlier, these are the standard questions most business market research studies seek answers to. But when it comes to franchising, some fine-tuning is required. After all, to get the right answers, you need to ask the right questions!

Let’s see how this process shapes up for franchise market research in the UK.

1. The Market Appetite

The tug-of-war between the supply forces and the demand forces is at the very heart of modern economics based on the fair competition as envisioned by Adam Smith. So, if you’re about to dive into the world of franchising, you must – and there’s no way around this – be not only familiar but also proficient in the understanding of these ideas.

What is Supply?

The supply forces are, in the simplest of terms, the collective availability of a given product or service in a given location. The rarer the products, the easier the business!

What is Demand?

The demand forces are made up of the need and desire quotients of a given product or service in a given market. For a small business with limited market-muscle, it makes a lot of sense to swim along the supply current, rather than trying to break through.

Making sense of these forces is much easier than it may appear. It’s all, eventually, about common sense. You sell what sells and you don’t what doesn’t – that’s the gist of it all.

So, when you decide to buy a franchise or enter a particular franchise industry, you should always know how ‘hungry’ the market is for the things or services you are going to sell. The market appetite is a massively important factor in the success of a business, and the eventual scalability.

2. The Purchasing Power of the Target Demographic

The purchasing power of the demographic you will be targetting should always be the backbone of your important business strategies – from selecting the right products to setting the right prices.

If you are going to buy a luxury fitness franchise, it goes without saying that you first need to study the average fitness expenditure of a family in your franchise territory. It will make all the more sense to switch to an affordable yet feature-rich gym franchise if the territory you want to operate in is a predominantly middle-class suburb.

3. The Inherent Utility Value of Your Business

Not all businesses can stand the test of time. The ‘death-rate’ of new businesses in the UK – standing at 12% – is a telling number in this regard.

What goes wrong in all these cases, then?

The reasons can be many and wildly diverse, starting from the common lack of capital to a chain of rare, unprecedented market upheavals. But the recurring theme in many of such business-demises is the loss of value of the product being sold. So, when you are choosing and buying a new franchise, you should always be adequately sure of the fact that what you’re selling will still be a valuable commodity or service ten years down the line.

This is a solid reason why service-based franchises are so common around the world. Services like childcare, fitness or domestic cleaning are never really going to run out of takers, meaning that if you buy such a franchise, you can be fairly certain of business longevity if you run your business the right way.

4. The Economic Viability Study

Your franchise market research enters a critical stage at this point.

Since it’s all about making profits, the economic viability/feasibility study will always be the cornerstone of not only your business plan, but your business itself. You will make every single business decision based on this study, and so will your creditors and investors. So, it’s of utmost importance to have a fair, conservative and fact-based economic feasibility study before you invest a single pound into a franchise business.

Such a study is aimed at giving you a good idea of the following:

  • The Incomings

The incomings predominantly involve the revenue your business can generate based on various factors, chiefly the market appetite, that we have already discussed.

Let’s consider the example of a fitness franchise that will operate in a mid-sized city. The territory allotted to your franchise covers, say, 15,000 households accounting for 35,000 adults. If your projections show that you can successfully get 2% of these people on board, you can hope to see 700 new registrations throughout your first year. A monthly membership fee of £25 means that you can generate a sum of £17,500 per month (upon surviving the first year).

This will be the primary – in most cases the only – component of your incomings.

  • The Outgoings

The outgoings account for every expense that you need to make in order to keep the business running. From the interest on the borrowings to staff salaries and from franchise royalties to maintenance/operational expenses, there are numerous heads under which the outgoings will be divided.

Carrying on with the last example, let’s assume that the monthly expenses collectively amount to £12,000. This will mean that your franchise will generate a net profit of £5,500 per month, based on conservative estimates.

The primary focus of carrying out this study is to make sure that the business has enough potential to generate adequate returns on your investment within 2-3 years. If not, it may well be prudent to look at the next opportunity that comes your way. If you aren’t familiar with how these studies are conducted, it’s a good idea to hire a professional business analyst and an accountant to crunch these numbers for you. It will not only lend a third-party, neutral perspective to the whole endeavour, but also assure your prospective lenders about the promise that your business holds.

5. The Competition Review/Intelligence

The next up is the review of your competition – local, national and even global.

The stress here will, of course, be on the local competition. This competition includes the local businesses that are in direct competition with yours, along with the ones that may pose a tangential or peripheral challenge. Reviewing your competition essentially includes taking stock of what the competitors are doing right, where they are lacking and how you can capitalise on those ‘openings’. Some common parameters to study in this regard are: ongoing prices for the competing products or services, marketing budget, brand recognition, territory exploitation, relationships with suppliers etc.

The customer acquisition strategy for your future business will be directly impacted by the actions of your competitors, and hence, conducting a thorough review of the competition should be an integral part of your market research project.

Ways to Conduct Franchise Market Research

Now that we’ve seen what market research is, you must be wondering how you can stay on top of all these minutiae without any prior experience.

The answer is – you don’t always have to!

There are numerous market research companies out there that can – at no great costs – can provide fast, reliable and comprehensive market research. You should, however, always know how to interpret the reports provided by such professionals in order to make the right calls.

If you don’t wish to hire such professionals, you can invest a few weeks of your own time to find out the ground reality of the business you want to enter. Talking to existing franchisees, as we have suggested in many of our free franchising guides, is a great starting point in this direction.

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The Internet, Social Media and Networking – An Open Secret to Franchise Market Research

There’s no equivalent event, creation or design throughout human history that can possibly rival the impact that the internet has had on human life. This invisible giant, quite literally, rules every waking moment of our lives, and there’s no reason why you can’t harness its power to fuel your very own and fully organic franchise market research project.

A small step – as easy as Googling the franchisor, the franchisees, the brand and the competition – can reveal a great deal of information. This information can well be the base for the next steps in researching the market. Moving on, you can visit the social media profiles – Facebook, Instagram, Twitter, Pinterest, to name a few – of your competitors to see what they’ve been up to, how engaged their customers are with their profiles and what sort of ‘social proof’ their products or services have established.

Pro franchise4u tip: Save/bookmark the social handles of your competitors – they will all come in handy if and when you decide to run marketing campaigns on Facebook or Google.

As an extension of this effort, you can visit LinkedIn and extract the email addresses of franchisees who work with the same franchisor or within the same industry; popular suppliers; industry experts and analysts. Writing personalised emails requesting more information or answers from people who’ve been there before you often yields great results.

Franchise Market Research – A Handy Questionnaire

Why have you shortlisted this industry?  
Why have you shortlisted this franchisor?  
What do you know about this industry?  
How do you see the product/service you want to sell?  
Have you used this product/service yourself? What is your perception of the brand value of the franchisor?  
Do you live in the territory you want to operate your business in?  
Are you familiar with the ‘ground reality’ of the market in this territory, in regard with this business?  
What does the market appetite study indicate?  
What does the purchasing power study indicate?  
How scalable do you think this business will be, based on the inherent utility value of the products/services being sold?  
Have you conducted an expansive economic feasibility study? What does it suggest about the potential profitability?  
How much competition do you expect to face in your territory? What more does the competition review tell about the challenges in this aspect?  

The Takeaways

  • You must carry out thorough franchise market research before finalising an industry or a franchisor.
  • It often pays to get professional market research services involved, once you have shortlisted franchisors.
  • Having ready a comprehensive market research report is a key to securing franchise finance.
  • Be conservative while projecting numbers.

Assume a neutral – at times critical – view of seemingly favourable stats.