Most franchise businesses began using territories because they were forced into it by their earliest franchisees, looking for a patch of dirt they could call “their own”. Many businesses started with what I call a “Beer and Pizza Map”, normally agreed upon by a few enthusiastic franchisees, the franchisor and a few pizzas, beers and a couple of red wines.
These first attempts were usually affected by the levels of alcohol consumed, and the passion of the various franchisees to negotiate for their patch of dirt.
Time has now passed by, demographics and mapping have greatly improved, and become far more readily accessible, so now we can look to a much more scientific and measurable approach to create territories of similar potential for the franchisees.
So when should we have a territory?
I believe if we are in a service business, a territory is almost an essential item. Most service franchises rely on the franchisor partly or totally distributing the leads that come in via phone or the web, and they need a logical way of passing these on. As a franchisee who has paid to join the System, and been allocated a territory, it is naturally in your best interest to make sure the leads do come your way.
If we are a bricks and mortar business (retail, food, café etc), a territory is not an essential part of the business. Most of the customers probably come to you (walk ins), however many franchisees see it as an Exclusion Zone, and a territory is a way of protecting their investment, from having a competitor under the same brand nearby.
The future of business in general
Unless you have been living under a rock, you will have observed that the online demands are increasing every day, as consumers move much of their business from traditional walk in / or phone ordering to using an App or an online portal (think Uber Eats for example). Franchisors need to be aware and supportive of this transition unless they want to follow the dinosaurs.
The concept of allocating leads and orders has moved very rapidly from a call centre to a combination of call centre, online and physical visits. It is therefore becoming more and more important as the contact points are moving more into the online world to have territories and systems to allocate the jobs to the right service provider.
The process we recommend to potential customers (franchisors wanting a robust territory planning system) is as follows:
1. Analysis phase
This is where you need to understand where you are to begin with. Many businesses have hand drawn maps (out of date) in their Franchise Agreements, or a list of postcodes or suburbs (that may no longer be current). The first job is to digitise these maps / lists and create a “Single point of Truth” so you can be confident this is how you understand the existing territories, and that the Franchisees are in agreement. It is no point in setting up new territories if you are not in agreement with the franchisees on the current position. Sometimes this may involve actually sending a map out and asking the franchisees to sign it and confirm that it is also their understanding of their territory.
The next part of the analysis is measuring each territory and seeing what it now contains (using the latest data), and if you have been basically consistent. It is not uncommon to find territories where one has triple the number of people, households or businesses than another one (that may have a far bigger area)!
We need now to agree on the rules for future territories. Many of the original territories are locked in for the period of their agreement, so you just have to live with that, but not repeat the problem.
Often a client can provide the customer address details and we can undertake some analysis to support the question “who is the customer”? Using demographics we can look at the market in terms of customers / 1,000 population in any area, and understand what are the Drivers of the business.
We then will create a Target Market Index, or an algorithm to best explain the demand for your service in terms of demographics that can be reliably measured.
For example if I was a mortgage broker, the algorithm may be:
Demand = Number of households x high % persons of middle income x high % young families.
In layman’s terms this is saying the demand for the service is a function of:
- Number of households in the territory (starting point)
- Improves more if a high % of middle income (potential customers most likely to use mortgage brokers not banks)
- Improves even more by high % young families – best customers for a mortgage broker, either buying or improving their house.
Now we need to discuss how many territories you want as a mature business. I know that may seem far into the future, but if you can look at it as a 10 year goal, that is a great start. The other way is if you have local knowledge of your franchise business, what area do you feel makes up a reasonable territory, either one you have had personal knowledge of, or maybe looking at some successful franchisees. If we can map it, we can measure it, and I like to say make that into the “cookie cutter” for the rest of the market.
At the end of the analysis phase we should be able to say:
1 . How big is the average territory we wish to create for the future?
2. How many territories should this give us Australia wide?
We are now ready to cut up the various markets by the rules we have established in the Analysis phase, and create the number of territories long term we have agreed upon. In some cases this may also include preparing to re-size some of the original territories when their Franchise Agreement is up for renewal.
The territory cutting is the easy part. The hard work is in the logic and analysis to make it so you should be able to stand with your hand on your heart in front of your franchisees of the future and say “Our aim was to give you territories of similar potential, irrespective of how the customers make contact with us”.