Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Win with Site Selection Audits
Transcript
- Lucas: There's a moment in every franchisee's life when they sign a lease and immediately wonder if they just made a massive mistake. That moment usually comes right after the ink dries, and it can be avoided with a site selection audit. Luna: A site selection audit? That sounds like something the franchisor does before they approve a location, not something a franchisee does after. Lucas: Right, and that's exactly the gap. The franchisor's site selection team runs their models, but they're not the ones on the hook for the lease. I was talking to a franchisee who runs a quick-service restaurant outside of Austin, and she told me she saved herself about two hundred thousand dollars by doing her own audit after the franchisor had already given the green light. Luna: That's a huge number. How did she figure out the site was bad? Lucas: Well, her franchisor's model said the trade area had enough daytime population. But when she dug into the data herself, she found that most of that 'daytime population' was seasonal construction workers who wouldn't be there in two years. Plus, the only access to the site was via a left turn off a six-lane road with a median. So she negotiated the lease down and pushed for a landlord improvement allowance to widen the entrance. That alone turned a breakeven case into a profitable one. Luna: So she didn't walk away; she used the audit as leverage. That's the smart move. Lucas: Exactly. And that's the core of what we're talking about today: how you can run a site selection audit on a location the franchisor has already approved, before you're locked into a ten-year lease. It's a five-step process that takes about three weeks if you're outsourcing the data, or six weeks if you're doing it yourself. Luna: Show us the step one. Lucas: Step one: verify the franchisor's trade-area map. Most franchisees just accept the radius the brand gives them, say three miles or a five-minute drive. But those maps are often drawn with the happy path in mind. Use a tool like the US Census Bureau's on-the-map portal to see where your customers actually live and work. I've seen a case where a franchisee discovered that 30 percent of the brand's projected customers would have to cross a river with only two bridges, both with tolls. That's a behavioral barrier the model didn't catch. Luna: That's a great example. So you want to see if there's something physical or psychological that keeps people from crossing into your strip mall. Lucas: Right. And step two is to verify foot and vehicle traffic counts. The franchisor likely used a third-party data provider, but those numbers are often projected, not actual. If you're in a retail or restaurant space, you can get a manual traffic count for about three hundred dollars from a firm that sends someone to stand on the corner. Or you can use anonymized cellphone location data from providers like Placer.ai, which gives you visitation patterns. I always tell franchisees to do a manual count for at least two weekday hours and one weekend hour. The difference between projected and actual can be 20 percent or more. Luna: Twenty percent is massive. That could flip a decision. Lucas: It can. And that's why step three is so important: review the lease clauses that affect your ability to adapt. A lot of franchisees sign leases with use clauses that restrict what you can do on the premises, or exclusivity clauses that let other tenants take your customers. Look for a co-tenancy clause, which allows you to break the lease if an anchor tenant leaves. If your site is in a shopping center with a struggling anchor, that clause is worth its weight in gold. Luna: So you're not just auditing the location; you're auditing the legal documents too. Lucas: Absolutely. And step four is to run a sales transferability analysis. The franchisor will give you a pro forma with a projected sales volume. You need to stress test that number. Look at the sales of similar units in similar markets, and then adjust for the specific trade area's household income, age distribution, and competition. There's a simple formula: take the median sales of your franchise system, apply a location score that's a weighted average of traffic, income, and visibility, and then compare that to the pro forma. Luna: That sounds like something you could do in a spreadsheet. Lucas: You can. I've built one, and it takes about half a day. But the key is to use local data, not just the national averages. For example, if your brand's average customer spends 40 percent of their income on rent and you're looking at a site where the median rent is 50 percent of income, you're going to see lower discretionary spending. That should lower your sales projection. Luna: And then there's step five? Lucas: Step five is the site walk with fresh eyes. You have to go there at different times of day, and I don't mean just during business hours. Go on a Tuesday at 10 a.m., a Friday at 6 p.m., and a Sunday at noon. Look at the parking lot, the signage, the visibility from the road. Take photos and compare them to what the franchisor's photos showed. I had a franchisee tell me that the site looked great in the aerial photo, but when she visited, she found that a new overpass had blocked the direct view from the highway. Nobody caught that because they were using outdated satellite imagery. Luna: So the audit is really about catching what the models miss. Lucas: Exactly. And the most common mistakes I see are: relying on the franchisor's spreadsheets without questioning the assumptions, ignoring the competition within a five-mile radius, and not checking the local zoning ordinances. Did you know that some municipalities restrict drive-throughs or limit signage height? A franchisee of a coffee brand found out that the zoning code only allowed a sign that was four feet tall, but the brand's prototype required eight. The city wouldn't budge, so the unit's visibility tanked. That's a five-thousand-dollar mistake that could have been caught with a thirty-minute call to the planning department. Luna: That is such a concrete example. So the audit is not just about data; it's about understanding the local context. Lucas: Right. And here's where it gets really interesting: you can use the audit not just to decide whether to sign the lease, but to renegotiate it. In the Austin example, the franchisee used the audit findings to ask for a three-month rent abatement and a lower percentage rent, because the traffic was lower than projected. The landlord said yes, because they didn't want the space to sit empty. That's real negotiating power. Luna: So you're turning the audit into a financial tool, not just a risk assessment. Lucas: That's the mindset. And you should do this audit not just for new locations, but for renewals too. A lot of franchisees sign renewals without re-evaluating the site. If the area has changed—maybe a big employer left, or a competitor moved in—you might be better off relocating. A renewal audit can save you from being stuck in a declining location. Luna: Do you have a number on how much time this takes for a renewal? Lucas: It's about half the time of a new site audit, because you already have sales data. You can compare your actual sales to the pro forma, and you can look at the trade area dynamics. I've seen franchisees use renewal audits to get better lease terms—like a lower base rent or a longer term with fixed increases. That's an immediate bottom-line impact. Luna: That sounds like a smart move. But what if you're not the analytical type? Can you hire someone to do this audit for you? Lucas: Yes, and there are firms that specialize in this. They charge anywhere from two to five thousand dollars, which is a fraction of the cost of a bad site. But even if you hire a professional, you need to be involved in the process. You know your business better than anyone. Luna: So the key takeaway is that the franchisor's approval is just a starting point, not a final verdict. Lucas: Exactly. And that's a theme we've been building all season. Whether it's unit economics or site selection, the most successful franchisees are the ones who do their own homework. And that homework can be the difference between a location that's just okay and one that's a home run. Luna: Before we go deeper into how to negotiate with landlords, I want to mention something that's been on my mind. We make these conversations for you, and we keep them free of ads so you can focus on the content. If you've found any of these episodes helpful in your franchise journey, and you want to support that ad-free choice, there's a link in the show notes: buy me a coffee dot com slash fexingo. It's a simple way to say thanks, and it helps us keep doing this. Lucas: Yeah, and it really does make a difference. We appreciate the listeners who have already supported the show. Now, back to the negotiation side. Once you have your audit findings, you need to present them to the landlord or the franchisor in a way that's constructive, not confrontational. The goal is to get to a win-win. Luna: How do you frame it so the landlord doesn't just see you as a complainer? Lucas: You frame it as a partnership. Say something like, 'I've done a thorough analysis of the trade area, and I want to make sure this unit has the best chance of success. Here are a few things I found that could impact performance. Can we work together to address them?' You're not blaming anyone; you're just bringing data to the table. Landlords appreciate that because they want tenants who are going to succeed and pay rent. Luna: And what if the landlord pushes back and says the rent is firm? Lucas: Then you have to be willing to walk away. That's the ultimate power. If the numbers don't work after you've done the audit, and the landlord isn't willing to adjust, then you're better off looking at a different site. I've seen franchisees walk away from a site and find a better one a few months later. The sunk cost of the audit is nothing compared to the cost of a bad lease. Luna: That takes guts, but it's the right call. Lucas: It does. And the same logic applies to renewals. If the area has deteriorated and the landlord won't budge, maybe it's time to relocate. Franchisees often have a territorial right to relocate within a certain radius, so you might not lose your customers. Luna: Have you seen anyone actually do that successfully? Lucas: Yes, a pizza franchisee in Ohio moved a mile down the road to a newer strip center with better visibility and a drive-through, which his old location didn't have. His sales increased 25 percent within six months. He did a renewal audit, realized the old site was declining, and made the jump. That's the kind of bold decision that comes from having good data. Luna: That's inspiring. So the audit isn't just about avoiding bad sites; it's about finding great ones. Lucas: Exactly. And that's the mindset shift I want to leave you with. The next time your franchisor says 'this location is approved,' don't just nod. Run the audit. It could save you hundreds of thousands of dollars, or make you millions over the life of the lease. Luna: And if you want more resources, we'll put a checklist and a spreadsheet template on the show notes page. Lucas: Perfect. And as always, we're here to help you make smarter franchise decisions. Next time you're looking at a site, think like a detective, not just a franchisee. Luna: Thanks for listening, and we'll catch you next time on Franchise Conversations.