Outside the City Limits: Big sales don’t necessarily equal big profits

You’ve been following a concept. You’ve done your research. You’re ready to go, but wait…someone has already beaten you to the punch. Your concept has a store in your area. Dead end…or is it? Sometimes you can go bigger by going smaller. Don’t throw away your research and that concept just yet, stay with me. I’ve seen a concept making over a million dollars a year in sales be less profitable than one making $750,000. How is that? Typically, the bigger the city the more costly maintenance your business will need. I’ll break it down into three areas: 1) Real Estate – That ideal location you’ve found that gives you presence and visibility isn’t cheap, and most leases get more expensive over their five-to-ten-year life. 2) Marketing – So you’re in the big city. More people, more potential customers. How are you going to reach them? Your location can only draw so many. With higher population density comes more expensive promotions and marketing to stand out amid the white noise that is advertising. 3) Operations – If you’re in a food-related industry, can your throughput out race your higher costs? If you’re at 1st & Main, you’re going to have the foot traffic. If you’re in the restaurant business, this means you’ll be going through more food and paper. So your cost controls better be in place. Also, with that higher population density, employee costs will usually be higher. So when you’re looking at an area, ask yourself the following question: Can the operational throughput out race these higher costs? Lines don’t always equal profits. Now, I’m not advocating that city locations don’t work. They can definitely be profitable. It all depends on your financial position, like in Tannerism™ #20. If you’re up for the hustle and bustle, there is money to be made there. But, maybe you’re a one store or a marginal two-store entrepreneur. I would tell you to reference Tannerism™ #12: “In any business it isn’t about buying a job, but creating a lifestyle.” If the lifestyle you’re looking for is a little slower paced, but profitable, I suggest you look outside the city limits. You may find the opportunity that is precisely your speed.

Posted in Franchise, Franchise Information

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