Forbes recently performed a study of the best franchises to invest in. They looked at 100 of the best known franchise systems and came up with a list of the top 20 franchises for initial franchisees based on four main factors.
Factors Considered in the Study
In examining the potential for franchisee success, Forbes looked at four main factors in ranking the top 20 franchises:
- Estimated minimum initial investment: According to Forbes, funding the franchise is the greatest single hurdle to potential investors. A McDonalds franchise costs an average of $1.4 million to open, but offers unsurpassed brand recognition. Domino’s similarly has nationwide brand and product recognition, but averages a much lower total start up cost of $253,950.
- Number of total locations: Forbes believes that a wider physical presence provides greater recognition and a large number of outlets insures marketing strength. For instance, McDonalds, with more than 12,000 outlets, has near universal brand recognition for consumers.
- Survival rates: The study also indicates that a franchise is only as good as its franchisees’ likelihood of surviving the start-up. (This is also a good indicator that the franchisor supports all of its franchisees.)
- Training Hours: Forbes also claims that a good franchisor provides the support a new operator needs to successfully open and continue operations.
What Franchises Were in the Top Five?
At the pinnacle of the top-twenty list are:
- Kumon North America (learning centers)
- Papa Murphy’s Pizza
Why Buy a Franchise?
According to Robert Bond, publisher of Bond’s Franchising Guides and chief executive of the World Franchising Network, investors buy a franchise because they want to buy a business with instant name recognition. He says that the biggest challenge any new business faces is enticing customers to try them, which is much more of a problem with unproven companies.
Further, the instant marketing boost of a known franchise – provided by both the name of the franchise and the proven demand for the products (pizza, haircuts, auto repair) – gives a franchise a better chance of surviving those critical first years many businesses face after opening their doors.