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Franchise Buying Guide

Ready For Takeoff

Step Two
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Conduct A Market Analysis
If step one reveals the health of an industry, step two confirms whether enough target customers are in a particular area to support a business.

The industry and your franchisor have probably identified a particular demographic segment as target customers for its products or services. Your job is to make sure that demographic segment resides and makes purchases in the general market area you propose to serve. A market analysis or market feasibility study will tell you whether there is potential demand-that is, enough target customers-in your market to sustain your business. Even the most ideal products and services in the world will go unnoticed if there aren't enough potential customers.

To conduct your market feasibility study, compare a reasonably detailed profile of your typical customer with statistics on the population to determine how many of those consumers live in the market area you're considering. Your customer profile will have emerged as you conducted your market research. Franchisees can give you firsthand descriptions of typical customers; your industry analysis will yield insights as well. Secondary data from the U.S. Department of Commerce and other sources offer a wealth of information on the buying patterns of Americans in relation to particular businesses. They can also reveal the characteristics of the market area you're looking at.

Visits to existing franchises in similar markets can also tell you a lot about your prospective customers. You can draw many conclusions merely by observing customer buying habits and confirming your observations with franchisees.

All this information is pertinent to your market analysis. For example, industry studies may show that males 18 to 38 are a growing market for the franchise's products or services. Now determine the number of 18- to 38-year-old men in your market area, and compare their buying habits to the locations you have in mind. Does your proposed site match the target market's traffic patterns? Is it nestled among stores offering complementary products that appeal to the same group? If research shows that your product is an impulse buy and will do best in a high-traffic mall, that's the kind of location you need to look for. Don't settle for a strip mall instead of a shopping center, or your business may be doomed. Use the insights generated by your industry analysis and your market research to evaluate the appropriateness of every location you consider.

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