Feasibility study of a franchising project

FEASIBILITY STUDY OF A FRANCHISE PROJECT

davide-d-andrea-ricchi

How to understand if your franchise format has market.

To take a hundred steps you have to start from the first. In the world of business, and in extended also in that of franchising, the first step is called feasibility study and you will have to commit a part of your time, even with the support of some consultant, to realize it.

A first premise: the word feasibility here takes on at least four connotations. There is, for example, the technical feasibility regarding technological requirements, both in terms of instrumentation and team skills. In a franchise chain, tech tools are now essential for centralized network management.

Then there is the economic feasibility, that is a plausible analysis of the costs and benefits of your franchise project (and this we will discuss in a moment). Then there is the legal feasibility regarding the legal requirements of your project. And we know that legal aspects play a major role in a franchise project. And finally, the operational one that gets even more into the technical and helps you understand what your organizational efforts might be, in logistics for example as in the provision of raw materials for your franchisees.

The economic feasibility of a franchise startup

In general, studying the economic feasibility of your franchise project means having a clear idea of the initial costs you will have to bear and also the main sources of revenue.

Let’s start from the cost item, what will be at the beginning of your business?

  • The consultants to be paid: we talk about franchise consultants, network developers, lawyers for contract management, the creation of an operating manual, business plan, etc;
  • The marketing campaigns: in the costs of economic feasibility you will have to take into account the expenses to be made to attract potential affiliates in your network;
  • The costs of finalizing the lead: attracting a potential affiliate is just part of the job. Other costs will be then in finalizing that lead, those of an external commercial that must open and conclude a negotiation in exchange for a success fee, or the costs of employment of your internal collaborator in this activity.

Now comes the more pleasant notes that regards the revenue item. Typically a franchisor can generate money from:

  • Entry fees: represent the economic consideration that the franchisee will have to pay you to be part of your network and enjoy the services you offer;
  • Set-up services: this is the case when you and a partner will offer materials to set up the franchisee’s store;
  • Marketing services (when they are centralized): in this case, you will make available to your affiliates graphics, packaging, a social media marketing plan etc;
  • Royalties: unlike fees, which are paid once by the franchisee to the franchisor, royalties are paid periodically and generally calculated as a percentage of the turnover of the franchisees;
  • Resale of raw materials: However, this is not a source of income that applies to all types of franchises. If fashion, for example, is a custom, the same source of revenue can not exist, for example, in a franchise of services.

The elements for the analysis of economic feasibility

Going into more detail, there is a tool that completes an economic feasibility analysis. Let’s talk about the business plan. What does it include? First, numbers that represent the projections on the revenues and expenses of your project, then real data on the dynamics of the market and competitors and again the analysis of the social structure and a text that tells in detail the activity.

Do you want to know more about how to carry out an economic feasibility study for your franchise? Contact us.

CONTACT US

If you want to know more about how to create your own format from scratch or develop your franchise network, set up a free consultation.

Telephone exchange

Head office Italy

Via Copernico 38, 20125 Milano (MI)

Legal & Operational Headquarters

Via del Baluardo 19, 64100 Teramo (TE)

Dubai Branch Office

Dubai - United Arab Emirates
14th Floor, Swiss Tower, Cluster Y,
Jumeirah Lakes Towers,
PO449544