When it comes to choosing sites for franchises, sales estimates must have some credibility, writes Peter Buckingham.

Some franchisors apply little logic to the most important number in a new site evaluation – the sales revenue forecast. While data based analysis is an inexact science, history has shown that some data-based evalution will always be better than the wet finger in the air estimate, and if challenged, there should be some statistical base from which the sales forecast was derived.

Advantages of a process

By doing a market analysis project, franchisors and franchisees will make statistically-based decisions. The process will assist in identifying good opportunities, and allow an analysis of promising locations. 

The final major benefit of a site selection process is that a franchisor will have a record of what has been done, if there is a legal challenge.

What can a franchisee do for due diligence?

Whilst the franchisor is not expected to give out their sales estimates, as a prospective franchisee you can apply a reality check, especially with the franchisor’s cooperation. 

Most systems will provide access to other franchisees (or you can just go along and try and cold call them anyway). The critical analysis should be to try and look for similar locations, and learn what they are selling.

What to look for:

1. Similar types of sites – size (square metres), number of seats, access and visibility.
2. Similar demographics – maybe look up Quickstats online at www.abs.gov.au and compare postcodes.
3. Competition in the area (other similar businesses).
4. Competition from the same brand.
5. Vehicle traffic if a Quick Service Restaurant, convenience store, or petrol station. 

Once you have identified a couple of similar sites, speak to the franchisee, and find out how they are trading. If they are doing on average only a portion of what you are forecasting, tread very carefully.

If the franchisor is good enough to give you some indications of what similar sites are doing, verify them where possible, and use that as a starting point to see whether your proposed store is similar, better or worse.

Franchisees should look for franchisors who understand the drivers of their business, have a process in place for site selection and follow that process. 

Peter Buckingham is managing director of site selection business Spectrum Analysis Australia

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