The franchise territory, more than just a border!
Article by Stuart Lee
Many franchises will offer a protected franchise territory as part of a franchise agreement. Mostly this is referenced to provide a franchisee with piece of mind that there will be limited competition from within the franchise. However, there are some key factors that should be explored when creating a franchise territory and bigger is not always better!
Should a franchisee be central to a territory?
It is very common for a territory to be created around the location of a franchisee and use their local knowledge to aid the border creation. At first this might seem sensible, but for both parties in the long term this can cause some problems.
The franchisee – For many franchisees the long term goal of operating a franchise is to sell the business and reap the rewards of years of hard work. But if your territory has been centred around you, and your trade area is very specific to what is easiest for you, then it is unlikely that your prospective buyer lives next door! The more specific your territory and trade area is to your lifestyle then the less attractive it becomes to potential buyers.
Instead, think about the true potential of your business and how to really maximise the opportunity in your area.
The franchisor – Once a territory has been awarded then that geography is effectively locked away. A network of territories that are centred around the exact requirements of individual franchisees will ultimately lead to geography in between these territories that is extremely unattractive to potential buyers. What might seem like a sensible franchise territory strategy can ultimately lead to a vastly reduced number of potential territories available to sell across the country.
How to determine the size of a territory
This is one of the most common questions I am asked when helping franchisors devise their territory strategy. My advice is that the geographic size of a territory is a secondary factor behind making sure that there are enough potential customers in the area.
It is at this point though where things can get a little tricky as determining this is not so straight forward. To do so you will need a few key pieces of information:
- Access to demographic data
- Access to geographic data such a Postcode boundaries
- Understanding what demographics best describe your customer base. E.g. children aged between 4 to 9 years old
- How many customers does a franchisee need to be successful
By bringing together this information it is possible to assess an area to gauge whether it has enough potential customers to support a franchise.
This is also important to making sure that the territory is not too large, another very common problem franchisors face.
There is a lot to consider when it comes to franchise territories and this article only touches on a few of the key concepts, but hopefully you can benefit from these when it next comes to discussing a franchise territory.
Last Updated: 16-January-2017