When I talk with prospective franchisees one of the first questions they ask (and rightfully so) has to do with what will their return on investment (ROI) be. That’s a hard question to answer because it depends on so many factors that are different between each owner and their specific situation. As the owner of two stores, my ROI might not be anywhere close to what that franchisee’s would be.
With that said, over the past 18 months of running my stores and doing countless hours of analysis on the Monkey Bizness model, I can tell you what in my mind is the single biggest factor in what our franchisees’ ROI will be. If you are looking for me to discuss something around customer service or customer experience, this isn’t the article (although those are important). The single biggest factor is real estate. I tell prospective franchisees that in order to have a high probability of success, they must take the time up front to get their real estate setup correctly.
If you don’t invest the time it takes to research the real estate situation, it is a double whammy. I say this knowing that the vast majority of people we talk with are looking to lease a facility. The first problem with not being aware of the real estate aspect is with your upfront costs (the denominator of ROI). The more you spend, the lower your ROI and hence the longer the timeframe of your payback of your investment will be. The second problem is your ongoing operating costs (your numerator of ROI). If you find a facility where rent is even $1-$2/square foot greater than it should be, that will eat into your yearly return.
So, what does getting your real estate setup correctly look like? Well, that could take hours to talk about (sounds like fun, huh?) but I can give you a couple of bullet points:
- You want the least amount of space possible to operate your business successfully. This sounds easy, but wait until you start designing your dream business and the scope starts to increase. In my world, I often have people who worry about storage in their facilities. I get it, and I understand where they are coming from. I also know that you can find a lot cheaper options than paying $25 per square foot for that 400 square feet of storage every year.
- Value Engineering – I love architects, and in another life, I think I may have been one. With that said, architects design beautiful properties, not cost-effective ones. Doing things like lining up your plumbing can save literally thousands of dollars in your buildout.
- Location. Location. – There may not be a more universally offered service by franchises than location selection. There also may not be a service that varies more widely than location selection. Part of this process needs to include finding a property that can limit costs on buildout and has an on-going cost that fits into your model’s budget. Sure, we all want the building at the corner of 1st and Main or next to the Starbucks, but that doesn’t mean you need it. Finding a property that is already somewhat setup for your business can save you thousands of dollars up front. For instance, we have a franchisee who found a property with their bathrooms already built out. Finding a property that is an appropriate location can save thousands a year. Do you really need 40,000 people driving by your business every day? Maybe. Maybe not.
These are just the tip of the iceberg and how applicable they are to your situation will differ. But as you go through the process of determining what your ROI will be, remember that the choices you make day 1 on your real estate will have a material impact on your ROI every day that you own your business.