With 2022 just over, we will need to wait awhile to know how good a year it was. Studies estimated that at least 15,000 new franchise units could be sold in 2022.
2020 and 2021, the pandemic years, were of concern to the franchise community. While food led in all the categories, personal and business services were the most popular concepts emerging.
Lead generation became contaminated with “tire-kickers” flooding the lead generation sites with lower-than-normal lead-to-close ratios making the cost to close over $7,500. Micro-emerging franchise concepts (less than 11 units) converted leads at a 1:13 to Enterprise franchise concepts (200+ units). Proving even more that concept “validation” is essential to a franchisor’s success.
Even with inflation and high interest rates, the trend is that franchising post-pandemic is returning as economic conditions are creating new prospect through layoffs.
So, What Is the Strategy?
Quality business ownership has always outpaced fixed savings. With the market in a bearish state for the foreseeable future, franchise concepts are looking pretty good as an alternative. Most experts would agree that owning one franchise unit is a path to a decent income replacement, but multi-unit or even multi-concept is the path to Wealth Creation. We believe this is what Market Pull (buyer demand) is looking for.
In 2023, investors want agility, diversification, and higher margins. While food concepts remain king, the cost to open is still a barrier to entry for many new franchisees which disadvantages entrepreneurship for intuitional buyers. For this reason, at Collaborative Franchise Systems (CFS), we are recommending to take the money to open one Enterprise concept, as an entrepreneur and open as many Emerging concepts as you can. Due diligence is required.
At CFS, we believe a strategy of multi-unit ownership will be greater in higher margin franchise concepts in niche markets. Management training will be necessary, but franchisee profitability and wealth creation is its potential outcome. However, this creates a work “on” your business mindset versus work “in” your business plan.
For Franchisors, at CFS we offer a Franchise Refresh™ to help you validate and grow from a Micro to an Enterprise concept.
Dr. Robert A. Needham
Collaborative Franchise Systems, LLC