Owning a franchise can help you achieve your lifelong business aspirations, but picking the wrong franchise opportunity could also put a major wrench in your financial future. There are tons of top franchise opportunities out there, but trying to pick out the diamonds from the duds can be overwhelming and confusing — especially when tens to hundreds of thousands of your hard-earned dollars are on the line.
Thoroughly researching the top franchise opportunities is the best way to understand how to pick the one that will give you the greatest chance of long-term success. In this guide to characteristics of successful franchises, the Freeway team will explain how to identify reputable opportunities, then determine which franchises make sense for both your current circumstances and long-term goals.
What To Look For When Investing in a Franchise
One of the biggest determining factors for the success of your business takes place far before you sign on the dotted line and become a franchisee. That factor is due diligence. Doing your research and then critically assessing your findings is one of the best things you can do to set yourself up for success and avoid common pitfalls for first-time franchise owners.
There are plenty of franchise opportunities that are a great match for some people, but a recipe for disaster for others. A fast casual restaurant franchise could be a cash cow for a business owner with food industry expertise and plenty of capital, but it could just as easily bankrupt a less experienced entrepreneur. On top of these simple cases of misalignment, there are also some franchisors who use downright misleading advertising to hook new franchisees, without much concern for their long-term success.
When looking for the right launching pad for your business, you need to ensure that your franchisor is reputable, has your best interests in mind, and that the opportunity is a good fit for your unique situation. There isn’t a single perfect franchise that’s guaranteed to thrive. However, a strong franchise opportunity will likely have several foundational characteristics to set you up for long-term success.
What Makes a Franchise Opportunity Top Tier
There are four key metrics you can use to rate any franchise opportunity. Consider scoring each option from 1 to 5 and adding up the results to come up with an overall opportunity score.
1. Operational Complexity
For some, running a franchise is a frantic, hands-on experience that requires constant monitoring. For others, this type of business model is a well-oiled engine that only needs a bit of maintenance here and there. It all comes down to how complex the franchise is to operate.
Many people view franchise ownership as a path to financial freedom, but it’s also important to think about your personal freedom. While no franchise will run itself, the best franchise opportunities will have simple systems that are easier to build, run, and scale. That isn’t to say that complex operations are bad — they just require much more of your time, attention, and expertise, making them higher risk overall.
- Rate from 1 (highest complexity) to 5 (lowest complexity)
2. Staffing Dependence
As a franchisee, your employees are the backbone of your business, so building and maintaining your team is a must. As you look for prime opportunities, consider what kinds of staffing challenges you might face.
Want to run a highly specialized service franchise? Be prepared for limited availability of skilled talent. Interested in food service? Brace yourself for the shocking 150% turnover rates that are standard for the industry. While no industry has the perfect staffing ecosystem, a strong franchise opportunity will have fewer barriers to maintaining your workforce.
- Rate from 1 (highest dependence) to 5 (lowest dependence)
3. Long-Term Demand Stability
If you want your franchise to have the highest chances of success, start by thinking about what motivates your buyers to make a purchase. When it comes to surviving through hard times, franchises that focus on needs over wants often come out on top. If your customers have to tighten their purse strings, would your products and services be on the chopping block? Or do you offer necessities that they prioritize in their budgets?
To make sure you’re truly investing in a future-proof opportunity, it’s also important to look ahead at demographic trends. Some generations may have different ideas on what kinds of purchases are essential, so be sure to look ahead at how shifting demographics could influence demand.
- Rate from 1 (lowest stability) to 5 (highest stability)
4. Support Infrastructure
Having access to franchisor resources is the main draw of entrepreneurship through franchising. The best franchises will have in-depth, well-tested support systems to guide your business efforts and increase your chances of success. Look for a company that offers marketing support and assets, modern tech integration, franchisor training systems, and significant brand recognition.
- Rate from 1 (lowest support) to 5 (highest support)
Comparing Franchise Models: Understanding the Trade-Offs
When exploring different franchise models, focus on finding the best fit for your situation. While certain models may perform better than others in general, there isn’t a singular formula for success. Every advantage will also come with potential drawbacks, so consider your top priorities instead of looking for perfection across categories.
Food Service Franchises
Food service franchises are a popular option with tons of name recognition, visibility, and viral buzz. They generate high gross revenue, but they also operate on thin margins of 6% to 9% and can face volatile cash flow due to changing food trends, health standards, supply chain disruptions, and notoriously high staff turnover.
Food service franchises also require costly kitchen builds, expensive equipment, and complex inventory management due to perishable products. Due to the high learning curve and barrier to entry, these franchises are ideal for more experienced entrepreneurs with greater access to initial working capital.
Retail Franchises
You can find retail franchises in a range of sectors, from fashion to automotive to specialty products. Retail margins are moderate, ranging from 15% to 25%, but both costs and revenue are highly dependent on local real estate costs and store locations. In the digital age, when foot traffic is in decline, retail success depends heavily on your ability to offer a unique value proposition that e-commerce can’t match, such as the instant, on-demand convenience of corner-store franchises.
Service-Based Franchises
Service-based franchises have low overhead and high potential profit margins of 25% to over 40%, but they also have lower volume than food service and retail. Stability for service-based franchises is highly dependent on service type. Insurance franchises such as Freeway offer essential services that customers can’t do without, making them more likely to survive economic downturns than luxuries like cleaning services. Although they operate at a lower volume, models such as Freeway’s also have a strong potential for cyclical renewals, which you can capitalize on with help from established systems.
Why Insurance Franchises Perform Well in Various Economic Conditions
The ideal franchising opportunity will have lower risk, higher stability, and a low barrier to entry for new entrepreneurs. Service franchises in general check many of these boxes, and the insurance sector has the added benefit of offering an essential service that many people simply can’t live without. There are several reasons why insurance franchises offer the ideal trade-off for many franchisors, providing the opportunity to build consistent, recurring wealth with lower financial risks.
Mandatory Demand
Time-tested franchises are often substantially less risky than newer options trying to capitalize on sudden trends. If you’re not sure if your franchise is here to stay or just a fleeting trend, ask yourself: Are my customers looking for essential services to meet their fundamental needs? Or are they just participating in the latest viral moment?
Although people may change their coverage or switch providers, most people need insurance for their cars, homes, and health. There are legal requirements for auto coverage in all 50 states, and lenders mandate insurance for homeowners. Demand is built into the structure of society, giving you a powerful foundation that doesn’t apply to most franchises.
Recurring Revenue Model
Making your first sale as a franchisee is exciting, but it’s all about what comes next. The most reliable franchises will have a plan in place to secure recurring revenue as you build a growing foundation of loyal customers. If your customers are just making a single purchase, you’ll be stuck in the cycle of chasing down new customers, wasting valuable time and resources.
The insurance industry is built on renewals. Policies renew every six months to a year, so you can reliably estimate future recurring income. People might grab a meal at a restaurant once and not go back for years, but you can be sure that they’ll renew their auto coverage for decades. As they grow their family, you can multiply those renewals through additional vehicles, home coverage, and protection for family members.
Community Trust and Relationship Building
Consumers enjoy being able to connect the purchases they make to a real person. Franchises that revolve around relationship-building can quickly garner support from the local community, cultivating a strong base of supporters. Older demographics and family-oriented cultures place special value on face-to-face professional services, making trust-building essential in certain areas.
Insurance sales are built upon relationships, with many people viewing their insurance agent as a trusted expert who can handle their complex coverage needs. Customers want a friendly face to guide them through stressful claims and advocate for them during complex situations. Local insurance outlets like Freeway provide that in-person guidance that digital-only providers are unable to match.
Lower Overhead and Operational Simplicity
When people talk about the ideal franchise opportunity, they’re typically referring to a business that’s simple to start and run while also generating a profit. Overhead and operational complexity can also greatly impact future growth potential, making scaling your business a major risk. Expanding a retail franchise, for example, often involves expensive construction, massive investments in merchandise, and serious hiring costs.
Meanwhile, scaling an insurance franchise typically requires a much smaller investment for exponential growth and returns. To offer insurance services, you don’t need any inventory, you don’t have to worry about product expiring, and you don’t need expensive, custom spaces for your business. Staffing is predictable and secure, and your tech stack will handle the most complex operations for you.
Economic Resilience
Every business has its highs and lows. The way a business performs during leaner times can be a powerful indicator of its long-term viability. Before committing to a franchise, you need to look at how similar businesses performed during major economic downturns, such as the 2020 pandemic or the 2008 recession.
Insurance is recession-resistant, as people can’t simply go without insurance without major consequences. Insurance franchises like Freeway focus on driving renewals and decreasing churn to keep cash flow strong, even during economic challenges. The stability of the insurance sector makes it easy to more reliably predict income despite economic volatility, so you can cover essential business expenses and keep taking a salary while other franchises shutter their doors.
Questions to Ask Before Choosing a Franchise
Before diving into a franchise opportunity, you need to conduct a thorough self-assessment to determine if it’s a good fit. Even the most reliable, low-risk franchises may not be the right fit for every interested entrepreneur. To determine if you’re ready for franchise ownership and if a franchise opportunity is fully aligned with your goals, review these critical factors.
Financial Readiness
The best franchises are built on a strong financial foundation. Taking an honest look at your own finances should be step one in your franchise research. Ask yourself these core questions to develop an accurate picture of your financial readiness:
- Do I have enough liquid working capital to fund the business for 6 to 12 months until it becomes profitable?
- What options do I have for raising capital? Do I qualify for SBA loans?
- Have I reviewed the Franchise Disclosure Document (FDD) Item 19 with a financial advisor?
- What will I do if the business takes longer to become profitable than expected?
Lifestyle Alignment
Different franchise types are suited to different levels of involvement. If you want to be hands-on in the daily operations, your ideal franchise will look different than someone who wants minimal participation. The type of business activities you enjoy will also greatly influence which franchise best aligns with your ideal lifestyle.
- How much time do I have to dedicate to the franchise?
- What is my ideal work schedule now and in 3 years?
- Am I comfortable with sales and relationship building?
- Do I have hands-on management experience, or will I need support?
- Can my family support the demands of starting a business during the first year?
Franchisor Evaluation
Not all franchisors in the same sector offer the same chances at success. Assessing the quality and reputability of your franchisor is just as important as reviewing your own abilities. You can ask some of these questions directly to the franchisor, while you’ll have to answer others on your own through research and interviews.
- How long has the franchisor been in business?
- Can I get feedback from 10 franchisees, including franchisees who have been with the brand for at least 5 years?
- What do current franchisees say about the franchisor?
- What is the franchisee turnover rate?
- What does the training program entail?
Market Assessment
Business ownership doesn’t exist in a bubble. You have to consider outside factors from your environment, such as the economy, demographics, and competition.
- What territories are available?
- Who are your competitors? Do they already exist in your chosen territory?
- What demographics exist in the territory, and do they match your ideal customer?
- How does this franchise differentiate from competitors?
Long-Term Value
Beyond short-term profitability, think about the different paths you could take with your franchise 5, 10, and 20-plus years into the future. Looking at how other franchisees have progressed can give you valuable insights into your own future options.
- What’s the resale value of this franchise?
- What transfer restrictions are in place?
- Can I realistically scale to multiple units? What fees are associated with expansion?
- Does the franchise have a clear succession plan?
The best franchise opportunities will align with your entrepreneurial goals across multiple metrics. Considering both short-term and long-term fit, along with the reputability of your specific franchisor, will help you maximize your profits and avoid common pitfalls. If an insurance franchise sounds like a good fit for you, get started by connecting with the Freeway team online or over the phone at 1-877-822-3024.
FAQs
Learn more about which franchise options fit your goals, lifestyle, and resources by reviewing the questions below.
What Is the Most Profitable Franchise to Own?
There isn’t a single most profitable franchise, as there are financial trade-offs when it comes to revenue, profit margins, and return on investment. Typically, service-based franchises have the highest margins, at 25% to 40%, while food service franchises have high gross revenue and lower margins at 6% to 9%.
How Much Money Do You Need to Start a Top Franchise?
You need anywhere from $50,000 to over half a million dollars to launch a franchise, factoring in the franchise fee, 6 to 12 months of working capital, and other expenses.
What Makes a Franchise Opportunity Better Than Starting an Independent Business?
Franchise opportunities have fewer risks and more reliable returns than independent businesses due to the extensive support and proven business assets from the franchisor.
How Do I Know If a Franchise Opportunity Is Legitimate?
To assess the legitimacy of an opportunity, review the FDD with an experienced franchise attorney, interview current and former franchisees, and research any litigation related to the franchisor. Reputable franchisors will be happy to share this information openly.
What Questions Should I Ask Current Franchise Owners?
When speaking with current franchisees, ask about how their actual earnings compare to projected figures, how franchisor support impacts their business, what their biggest operational challenges are, and how they overcame issues during their first year of operation.
Are Insurance Franchises a Good Investment?
Franchises can be an excellent investment, especially when you choose a proven category like insurance. Insurance franchises provide you with a time-tested business model, recurring revenue, and powerful brand support to help you build community relationships.
