The franchising business carries a lot of risk alongside with the potential rewards. A successful franchise is basically a wild idea of somebody that was able to turn in into reality with the help of hard work and, most of the times, a healthy amount of luck. Naturally, young businessmen see an opportunity in these kinds of endeavors: if it worked once, it will work twice.
And that’s how the franchising begins.
However, creating a solid franchising strategy can be challenging. It may not seem so at first glance, but if you plan on expanding and really making the most out of your business, it gets harder as you go. In order to do everything right and maximize your potential, there are a number of best practices that should be followed when mapping your franchise territory:
Dividing the area
This is by far the most important step that you need to take: divide your area smartly. While it may sound easy at first (just give a chunk of the whole cake to anybody who offers the best deal), it gets harder and harder as the number of your franchisees increases.
Make the territory too large and you will lose money, a lot of money. Make the territory too small though, and you will kill your franchisee’s business. So how do you do this right?
There are 2 approaches to the issue.
1. Divide the area into a few big chunks
This is a good strategy if you don’t have much information or data about your target customers, population, geography, etc. Also in this case, you will probably have very few franchisees that will take care of each territory on their own, without overlapping each other. This is a good approach if you are a beginner franchisor.
The idea behind this approach is that without much knowledge or data, your best bet is to give as much room to your franchisees to work with as possible. This will ensure their profitability, which in turn, will generate profits for you. However, there are a number of flaws associated with this approach:
- You will not be able to increase the number of your franchisees without having data and knowledge about the geography, costumers and population – Growing the number of your franchises means making the territories smaller, so they can all fit in without overlapping each other. You need solid data to understand how much territory is needed for a given franchise to be successful (not just survive!).
- You will be losing money, a lot of money. By making the territories too large, there is potential going to waste. To put it simply, there will be a certain number of customers in between those territories that would like to become your customers, but it’s simply too far away for them to come visit the franchise.
2. Divide the area proactively
This strategy will require precise, solid and reliable data to base your decisions upon. This way you will be able to set the boundaries of your territories aimed at maximizing profits, while making sure that profitable territories (place with high customer density) will be able to support underdeveloped areas (places with low customer density) in order not to lose money. To make your decision smartly, you will need 3 sources of data:
- Customer data – You need to know as much as possible about your target customers: everything ranging from demographics to their lifestyle preferences. This information will allow you to understand where your potential customers are located/spend most of their time and help you divide the territories equally among franchisees.
- Customer count per territory data – This data will show you how many customers a franchise territory should have to actually be able to succeed and prosper. Remember that it’s in the best interest of the franchisor to have successful franchisees: their reputation, sales, revenue and customer base directly depend on this. Determining this data can be somewhat troublesome and will often involve subjective side of the matter, but the best way to estimate it is by understanding and examining the franchisor’s territory. Taking into account his own territory and geographical features a reasonable estimate can be calculated. After the estimation, this data can be used to calculate the amount of customers needed for each separate territory and, taking into consideration any geographical differences, ultimately decide the boundaries of each territory.
- Geographical data – One is free to divide his franchise territories as he likes, but there are some generally accepted practices that come really handy when setting the territory boundaries. Zip codes, census tracts, user described areas (rivers, mountains, major roads, etc.), state boundaries and country boundaries are all good examples of these practices. Using a combination of these boundaries (for example, zip codes + state boundaries) will save you a lot of trouble both in terms of communicating the divisions to franchisees and making sure there will be no overlaps, which can happen easily if the territories are defined with the help of just one of the above mentioned boundaries.
After you get ahold of these three pieces of data you should be able to map your territories as good as possible without the help of any technology or territory mapping software.
Use only fresh data
The three data sources mentioned above change a lot over time and there tons of reasons for that: people leave/arrive to new homes, new businesses and business centers appear, the demographics of people change, etc. It’s important to update your data at least once a year (ideally, you want to do it quarterly, but that can be costly) to get the latest updates about your franchise territory.
It’s important not to view this advice as “optional”. Sure, it costs a fair amount of money to update your data, but the money you spend on acquiring the latest data directly translates into profit (or loss of it, in case you lack info). Here is a quick example:
Say your franchise territory is in Nashville, which is enjoying continuous population growth since 2000. From the year 2000 to 2008 the population of Nashville grew by approximately 33% (around 400k people). In 20 years, the population is projected to grow by another 65% (some 900k people). If you charge $0.25 per customer in your territory and estimate that 10% of the increased population will become your customers, that’s $25k you just lost, because you had outdated data. Suddenly, updates seem worth it, right?
Use geographical boundaries that aren’t subject to change (or at least it changes rarely)
This one is harder to pull off than the rest, but it’s still doable if you put some effort into it. Using geographical boundaries that change frequently leave you with a lot of unnecessary work that you need to do every time something actually changes.
For example the most commonly used division methods are ZIP codes. They are unique to each state, are reliable, easy to identify and everybody knows about them. The problem with zip codes though is that they are regulated by the U.S. Postal Service and for some weird reason they decided that they are going to change them each month. Well, that’s not the most convenient way of dividing your territory and it will create a lot of room for potential conflict (franchisee territory wars).
To avoid these kind of situations, it’s best to use a combination of division means or use census tracts. Census tracts don’t change often (maybe once every 10 years, which is acceptable) and provide the same level of comfort in terms of usage as ZIP codes.
Leverage the advantages of modern technology
Technological advancements offer numerous benefits in terms of franchise territory mapping and management these days. All of the above mentioned methods will still work with a territory mapping tool/software: the only difference is that everything will be done much faster and you will have the opportunity to visualize your territories along with their boundaries.
Not only that, but modern software will also help you track your customers’ moves with a heatmap, analyze your current trade areas and replicate territories in which your franchise has been most successful. Give it a try, you will love it.
Consistency and precise calculations are essential for franchise success, both for the franchisor and the franchisee. Map out your territories correctly and manage them with the most up-to-date data, safe territory geographies and advanced software to really stay on top of your game.