Franchise Rankings. It’s that time of year again. In the last thirty days, we’ve seen ranking reports released by some of the biggest names in the business including Entrepreneur, Franchise Times, Franchise Business Review and Franchise Gator. A quick Google search will also bring up additional industry rankings like those from Forbes and Franchise Direct that, although they are on a different release cycle, are relevant to the average franchise buyer’s decision making process. Each organization is quick to put their unique spin on their top “whatever” list leaving franchise buyers confused in their wake and asking questions like “Are these publications really credible?” and “Which of these rankings can I trust?”
Truth be told, there is some validity in each ranking. Each uses a different algorithm that emphasizes different criteria, but how can someone begin to understand what each ranking means, or even better, create an aggregate ranking that takes all of these rankings into account? I’m glad you asked!
The Ranking Suspects
Let’s start by taking a look at each one of the rankings and define (as best we can) the ranking criteria, what makes the ranking different, and why it should be included in an aggregate ranking:
The industry’s premiere and most visible ranking, Entrepreneur has been ranking the top 500 franchise brands for 38 years! Entrepreneur bases their rankings on what they call “The Five Pillars of Franchising” which are Costs and Fees; Size and Growth; Support; Brand Strength; and Financial Strength and Stability. This is where any aggregate ranking needs to begin.
Forbes ranks their franchises a little differently, breaking them into three distinct investment bands. As such, three franchises were lucky enough to receive #1 designation in this ranking. Forbes has gone to great lengths to bring credibility to their ranking algorithm, partnering with industry research firm FRANdata and focusing on objective criteria like growth rates, continuity rates and stability. As one of the most trusted brands in investing circles, including Forbes in the aggregate ranking is a no brainer.
Taking a slightly different tact, Franchise Times has bypassed the “growth for growth’s sake” mantra and has recognized brands that have been wise enough to pull back on the reigns to ensure that growth occurs in a responsible and sustainable manner. Consistency and continuity are critical here. This ranking should appeal to any buyer who is more interested in a long term investment rather than the latest flash in the pan.
The only franchise ranking based on actual franchisee satisfaction and performance. More than 26,000 actual franchisees provided input on their personal satisfaction levels to develop this ranking. With more than 3,500 franchise brands in existence today, just making the cut on this exclusive list of 200 brands is notable. Industry expert opinions are fantastic, but any aggregate ranking that doesn’t incorporate franchisee feedback would be missing the mark.
Franchise Gator’s ranking was formulated to measure risk reduction; taking into account themes common to other rankings like financial stability, growth, transparency, engagement, continuity and sustainability. What makes this ranking different is that it focuses on brands that are accessible to the typical franchise buyer. That means things like market availability, investment level and industry are also taken into account.
Franchise Direct includes more of the common metrics like system size, revenue, growth, etc. but adds an important element of global brand recognition into the equation. Let’s be honest, when you’re buying a franchise you’re buying a business model, but above all else, you’re buying a brand. While many perfectly viable franchise brands are not yet recognized on the international stage, including this ranking in the aggregate rewards those who have invested in building global brand awareness.
My approach to the aggregate ranking is much like how I prepare for a fantasy football draft. Get all of the “expert” opinions onto a single sheet, average them out to create a consensus ranking and sort. A few liberties need to be taken as not all brands rank on all lists (in fact, only one brand ranked on all six!). In these cases, the highest possible rank is assigned so all those that did not rank are on a level footing behind those that did. For example, any brand that did not rank in the Franchise Times Fast & Serious 40 would receive a default rank of 41, the highest possible rank they could have achieved without additional analysis. The only other wild card to consider is that there are three separate Forbes lists and as such, three brands received #1 ranking, three received #2 ranking, etc.
So what does the ultimate fantasy franchise ranking look like? Without further ado:
The fact that the top ranked brand has an average ranking of 28.3 only shows how little consensus there is across the various franchise rankings. However, the clear separation from those brands at the top of the list from the rest of the pack is striking. When I began this project, I set out to provide a statistically based and objective method with which to evaluate brands across multiple rankings. I knew Sport Clips would rank well (I was thinking top 5), but I had no idea the separation would be as dramatic as it is or that Sport Clips would be the only brand to rank on all six lists.
So what does that mean to you the prospective franchise buyer? I firmly believe that Sport Clips is a phenomenal investment opportunity and may very well be the best opportunity for you, but no ranking, broker opinion, marketing piece or seminar will ever replace the personal inventory that needs to occur in order for you to determine what opportunity is best for you. After all, each of the brands mentioned above represent great opportunities, but if the business model doesn’t get you excited and fit the financial goals, passion and lifestyle that you are seeking, none of that really matters.
So what are your thoughts? Have problems with the objectivity of the data or know of another major ranking that should be included? Let me know in the comments below or shoot me a message on LinkedIn. Let’s continue the conversation.