On the Down Low: New Report Finds Low-Cost Franchise Opportunities Still the Most Popular

Turns out low-investment franchise brands carry a lot of weight. Although they may cost less than some of the big names in franchising, they have a significant presence in the market, according to a new report from Franchise Business Review.

"When people hear the word 'franchise,' it's often the big food brands--McDonald's, Dunkin Donuts, Papa John's--that come to mind. But it's the low-cost franchise opportunities--those with an average investment of less than $100,000--that are among the most popular and sought-after," says the publication.

Franchise Business Review's annual report--Low-Cost Franchises--looks at lower cost franchise opportunities and names the top companies based on franchisee satisfaction. It also looks at the types of businesses that fall under the low-cost umbrella, what franchisees can really expect from their investment, and what the pros and cons are to investing in a low-cost franchise.

To compile the report, researchers at Franchise Business Review looked at more than 130 low-cost franchise brands, interviewed CEOs and franchisees at some of the leading franchise brands, and surveyed 11,167 franchisees.

Franchisees were asked to rank their franchise systems in the areas of financial opportunity, training and support, leadership, operations and product development, core values (e.g., honesty and integrity of franchisor), general satisfaction, and the franchisee community. Franchisees also answered questions about their market area, demographics, business lifestyle, overall enjoyment running their franchise, and role in the franchisee community.

Using this survey data, Franchise Business Review identified the top low-investment franchise brands (those with above average franchisee satisfaction). Any franchise company with at least 10 operating franchisees can participate, and the companies listed in the report are based solely on franchisee satisfaction ratings.

"While the investment might be smaller, the low-cost segment is big in terms of the impact it has made on franchising," says Franchise Business Review President Michelle Rowan. "In the past year, we've seen an increase in the number of businesses in the sector, the number of investors looking to buy, and the overall satisfaction of franchisees. With the right franchise brand, a low-cost business can be a great investment--even for investors with plenty of capital--because of the relatively low risk that comes along with owning one of these businesses."

Franchise Business Review reports that, although the franchise industry as a whole has faced a difficult few years in terms of financing and accessing capital, the low-cost segment has not been as affected by the lending shortage as higher investment opportunities.

In general, the average franchisee satisfaction for low-cost companies is 8 percent higher than Franchise Business Review's benchmark across all investment levels, and franchisee satisfaction within the companies dubbed Franchise Business Review's "top low-cost franchises" is even higher--averaging 15 percent above our overall satisfaction benchmark.

Published: July 25th, 2012

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