What to look for in your franchise territory
Atlas Mapping’s duty within the franchise market is to help franchisors create territories that are fair for both franchisees and the franchisor. The advice in this article will help you to make sure you are asking the right questions about the territory on offer but to also set realistic expectations. This will not only help you during your journey to becoming a franchisee but also have an impact on how you can grow your business.
First and foremost, it is important to understand the size of the opportunity available within the territory and how this has been researched. To understand the opportunity, research should be carried out on the demographics of the territory to determine the size of the target market. As an example, if you are looking into setting up a children’s activity franchise then how many children actually live in the territory? Or if you will be establishing a store or restaurant how many potential customers live within a realistic catchment area?
The demographics being looked at should relate to the customers you expect to be servicing and how they are acquired. If your service is a household service, then the primary demographic should be the number of households and not the number people. This is because in more urban areas you might have a very high population but also a much higher average number of residents per household.
Having knowledge of the size of market you will be servicing is very important for building your business plans as well as gauging the franchise opportunity on offer. If you know the size of the market, then you can be more confident planning the potential growth of your business.
This is a very important and often overlooked element of a franchise territory. It is very easy to think that “more is better” when buying a territory, however the more geography or opportunity you have then the larger the demands on your business to reach those potential customers.
We regularly see the costly mistakes of oversized territories affecting both franchisees and franchisors. As a franchisee, covering a territory that is too large can impact the return on investment (ROI) from your business activities. By spreading out too far you don’t concentrate and build up your business in one area, this is often referred to as “the shotgun approach”. Being much more targeted in a smaller area can deliver not only greater returns but also in a more profitable manner.
It is even more costly for a franchisor and a brand to award territories that are too large. Doing so can mean lots of geography is tied up in territories that franchisees cannot realistically service. Because the geography is also bound in franchise agreements it becomes difficult and costly to renegotiate territory borders. As a result, many potential customers and markets go untouched and the growth of the overall business stalls and becomes stagnant.
It is more sensible to put in place a multi-territory development plan rather than purchase a singular very large territory. This gives you a more structured growth plan and the franchisor stands a much greater chance of maximising market reach. Ultimately these two things combined give the overall business scope for larger and quicker growth which is good for all parties.
Not all territories are equal
It is unrealistic to expect a franchisor to offer territories of equal opportunity as this is an impossible task. As an example, would a territory containing 50,000 households in South West London deliver the same opportunity as a territory with 50,000 households in rural Cornwall?
A franchisor who has invested in their network will have pre-planned the whole network with a professional third party mapping company. This allows all of the realistic territories to be identified and be built in an optimum manner to provide maximum market reach potential.
You must be careful if you compare your territory opportunity to other territories in the network as each territory has different market demographics and compositions. You may find that your territory contains less target market than one of your potential neighbours but it might be much more densely populated. This will make it much easier for you to reach customers and therefore improve your ROI from business activities.
In summary it is important to take a holistic view of your territory making sure all aspects are taken into account and what it will mean for your business venture. There is a wealth of information available to explore the detailed market composition of any franchise opportunity available to you. Carrying out due diligence research on your area will not only make sure you are comfortable with the opportunity you are purchasing but also give you a good foundation to build your business.