It is accepted that franchisees need the protection of a defined area in which to operate their business. Therefore, for companies looking to start their franchise journey, it’s important to spend time carefully planning for territory expansion. However, in the beginning, territory allocation needs to be a little fluid as there are so many variables to consider. If region allocation becomes too ridged too early on, there will come a point where it is too late to change.
A key initial task is to determine the criteria on which franchise territories will be designed.
If territories allocated are too small, franchisees will not have enough households or sufficient customers to maintain a sustainable business. However, territories which are too large also present problems. Franchisees may not be able to generate enough awareness through their promotional activity to penetrate the market sufficiently, or the distance between customers may simply be too great to make servicing viable. In short, territory size cannot be merely allocated on the number of post codes, it needs to be sense checked before it is set in stone.
Further, usually franchisees all pay the same franchise fee and so expect to be given an equal opportunity. Accordingly, franchise territories need to be balanced and equitable. For example, premises based operators will not be happy with another store operating under the same brand at the other end of their street. The ideal scenario is one where territories are as fair and balanced as possible, accepting some urban / rural variation.
In short, there are a range of important considerations when defining franchise territory criteria – customer mix, market penetration, economic conditions, marketing effectiveness, drive time.
To help create equitable territories there are some excellent services available, notably Atlas Mapping and Smappen. However, these services rely on robust, verifiable socio-economic, market trend and operational data. This can present a big challenge for new franchisors – they often don’t have this information in sufficient depth, therefore running the risk of creating territory maps that aren’t reliable – the classic ‘rubbish in, rubbish out’ situation.
Piloting is the stage in which franchise territory criteria can be fully tested and refined. During the early stages it’s typical for territories to be set based on the available evidence plus a healthy dose of good judgement. I advocate initially keeping them relatively small as considered appropriate to provide a sufficiently sized customer base – it’s always much easier to convince franchisees about the merits of expanding their territory than to agreeing to reduce its size.
Generally, franchise territories are based on postcodes as they represent the most obvious basis for identifying geographic locations. This is now particularly relevant given the widespread use of ‘nearest branch’ locator facilities on web sites – these demand that customer locations can be matched to the local franchisee.
Some flexibility may, however, be necessary. For premises-based businesses including franchised restaurants for example, it can work well with a set radius as the protected territory. However, thought needs to be given to a further ‘development’ area which is greater than the radius, as food outlets often need to attract visitors into their area, rather than rely on those customers only living in the immediate vicinity of the site.
Furthermore, territories do not always need to be rigid and for some businesses exclusivity may not be appropriate. I worked successfully with one home services franchise where we created areas of prime responsibility. This meant bookings received by a central call centre could quickly be allocated to another franchisee if the main franchisee was too busy. This flexible approach was a good way of ensuring the customer journey was not undermined in any way, and franchisees with free time could pick up jobs. While protection is important, the key point here is that organisations should never try and change the way their business operates and disrupt the integrity of the model just to fit franchising.
