5 Pitfalls to Avoid When Choosing Your Franchise Territory

by Mike Mack|
05. 03. 2016
|

Franchising

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Choosing the perfect territory for your franchise can be troublesome and seemingly difficult process. After all, you’re investing a lot of recourses into this step, which will ultimately decide whether your franchise business is going to succeed or not.

 

Your territory is one of the most valuable assets you get when you pay the franchising fee. If you do everything right, you will be rewarded, but if you make even one big mistake, it will be almost impossible to set things right afterwards or start fresh.

The franchise territory selection process is much like buying a home for your family. When you want to buy a house, there is a certain list of criteria that the house has to fit to, in order for you to consider it. Among the top ones are probably the part of the town that you want to live in, the safety of the neighborhood, proximity (or comfortability to reach) to shopping malls and areas, the distance from your job office, the quality and proximity of schools for your children and so on.

 

After you decide on those things, the next step is to choose a house that will fit your needs: 2 story house or an apartment, the number of rooms you want to have, availability of a pool or a garden, etc. After you find something that meets all (or most) of the criteria you set, you buy the house.

 

This is basically equivalent to choosing the best territory for your franchise, with the main difference being the criteria based upon which you pick your territory. You need to undergo a very similar process and choose the territory you need first, then choose a more specific location for your brick and mortar business.

 

In order to help you make the right decision, here are a few pitfalls that are very common and need to be avoided at all costs.

 

Assuming you should pick the territory that is the same (or close) to where you live

 

There are a number of reasons why franchisees want to pick a territory where they live:

  • They think that they know the neighborhood and can get people to visit the franchise easily
  • It’s very comfortable since the office is so close to their home
  • They will have the opportunity to spend more time with family

 

But this idea usually proves to be faulty. The thing is that when you buy a franchise, you need to choose a location that is best suited for the demographics of the people that the franchisor recognizes as potential customers. Even if you have very good relationships with the people in your neighborhood, you won’t be able to get them to visit your franchise, unless they want to themselves.

 

Here is a pretty common example: Say you live in a mostly vegetarian neighborhood and open and fast food franchise. No matter how much you try, you won’t be able to get people to visit you, simply because they don’t eat fast food.

 

Not considering your potential buyers

 

This is directly linked to the point above. The first and most important criterion that you need to keep in mind when choosing a territory for your franchise, is the number of the potential customers in a given territory. If there are no enough people who will continuously use your products/services, your business will pretty much turn into a time bomb: costs will outweigh profits and sooner or later you will have no other option but to abandon your business.

 

When choosing a territory while having your target buyers in mind, try to match the demographics and ethnicity of your buyer’s as best as you can to the location of your brick and mortar business. For example your buyers may be middle class people, aged from 25-50 that have standard, 8 hour jobs 5 days a week, drive a car, have 2 kids and like to relax in a cozy atmosphere.

 

So the perfect territory will be something like a quiet neighborhood where such kind of families live. The perfect location will be somewhere nice and quiet, but also close to their homes so that they don’t have to drive long miles to get to you. Also, you will need to have a parking lot, smoking free environment for the kids and have a park or an amusement center nearby.

 

Assuming territories with high income are good

 

There is actually some merit in choosing a territory where rich people live: you don’t have to worry too much about keeping prices low, since those people can afford almost anything. But the thing is that even if you choose such a territory, you still need to make sure that the people living there are your target buyers. No matter how rich a person might be, you simply won’t get him or her to use your products/services consistently, unless they are interested in them.

 

Falling for one data analysis

 

As much as your target buyers are important for your business, there are a few other criteria (competition, substitute products, population density, etc.) that make a big difference as well. A common mistake that many franchisees fall for, is focusing too much on one criterion and completely ignoring the rest.

 

So for example you might find a territory that is mostly populated with your target buyers and just go for it. But after you finish setting your business up, you see that there is so much competition and substitute products available in the same territory, that you are having too much trouble attracting your potential customers to your business.

 

When choosing the perfect territory, it’s important to consider all of the criteria and not focus on just one of them.

 

Assuming a territory is bad because it’s still available

 

The “herd mentality” is something you don’t want to fall for either. It’s very easy to fall for this since generally, if something is worth it, people don’t let the opportunity pass by. But in case of franchising, there are a lot of things that need to be taken into account as mentioned above.

 

For all you know, the territory can still be available because no business found it suitable. In any case, you don’t need to make assumptions: just go over your list of criteria and if you see that the territory fits, don’t hesitate and go for it. Data based decisions rarely go wrong.

 

Choosing the perfect territory for your franchise business can be very tiring and time consuming, but it’s important not to make rushed decisions just because of frustration. Remember that the success of your business depends heavily on this and therefore, you should invest as much time as needed into making the right decision.

Mike Mack

Mike Mack

Mike is the Co-Founder and CEO at Fract. With over 20 years of retail and business location analytics experience behind his belt, Mike counsels business owners and helps them get the most out of their business and sales data. He is also a passionate art lover and enjoys a glass (or two) of good wine with friends and family on the weekends.

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