Predictive Analytics to the Rescue

Brian Hill, Pitney Bowes Business Insight

I recently read an International Franchise Association article that outlined what franchisors should be doing to help their franchisees obtain funding for new capital projects in today’s risk adverse environment.

The suggestions were good and spoke to the fact that educating lenders about the brand and providing lenders with supporting documentation beyond the FDD is required today to help push things through a system that is still dealing with lots of uncertainty.

Another sound recommendation hinted at, but not expanded on, would be for the franchisor to provide the lender with some indication of the new store’s likelihood for success. An earning’s claim? No, we know these words are heresy, but predictive analytics can go a long way towards this objective without having to provide an actual projected revenue or earnings .

What are the dynamics of the trade area – are they favorable? How many of this brand’s best customers reside proximate to the new location. Where are the competitors and how do they help or hurt this location? What are the unique site characteristics of the physical store itself as well as the retail environment that will help this unit perform well? How does this unit compare to other units in the chain in similar markets sizes and conditions?

A well-thought out predictive analytics plan can help a franchisor more than just evaluating real estate for their own corporate stores, that very knowledge may be the difference between helping a franchisee get funding or not.  Lenders have also gotten wise to this and are now starting to do their own advance real estate research too. It’s a wonder this isn’t a lending industry standard already!