There are several different factors that contribute to a balanced franchise territory. A lot rests on getting it right. For a franchise business to thrive, it needs to present territories offering a clear value proposition to potential franchisees. Once established, the territory needs to have the economic potential that allows the franchisee to compete effectively and establish a successful business.
Territory Balancing As An Ongoing Process
This can be one of two things:
1) Establishing new territories of approximately equal commercial value; or
2) Restructuring existing territories to reflect changes in the market, for instance the expansion of competitors, changing customer demographics etc.
Territory balancing is not a one-off operation. It is an ongoing, dynamic process that takes into account real-time changes in the market, as well as the performance of your franchisees. The key to superior performance is a responsive franchise with territories that effectively cover a geographical market. Without this, territories become unbalanced, unable to take advantage of the business opportunities in an area, and unable to compete with non-franchise competitors that are not bound to specific territories.
Common Territory Balancing Mistakes
Pointing this out is easy, but in what sense should a territory be balanced? Some franchise businesses allocate territories simply by postcode or city. This does not provide for balanced commercial opportunities at all, but neither does the opposite approach, which is to ignore geography and divide territories according to the population or numbers of businesses. Both approaches fail to take demographics into account. This is mistake number one.
The second mistake is to allocate territories based on perceived economic opportunity, but ignore the logistical issues of servicing an appropriate number of customers. Using this approach, a franchise territory in Greater London may be quite small, while one in Cumbria might be large. Both contain an equal number of potential customers, but the franchisee in Cumbria will face greater costs and journey time going to appointments than her colleague will in London. This could see the Cumbria territory losing out to other franchises in the area with smaller territories; each with a smaller market but a superior ability to capitalise on the business opportunities.
From the perspective of a franchise business, territory balancing therefore needs to accommodate four factors:
- The level of potential return on investment for the franchisee i.e. the size of the market.
- How manageable an area is in terms of journey time to sales and customer appointments.
- The realistic market sales value of a franchise territory, compared with industry norms.
- The potential for expansion and growth of the territory. (Take into account 5, 10 and 15 year scenarios.)
Balancing Your Territories
To strike the right balance that lets you effectively manage the performance of your territories, you need to juggle several factors. Firstly, how much potential does an area really have? Territory management software lets you superimpose demographic data onto a dynamic map, showing opportunity hotspots, cold spots, the location of competitors and journey times. A good package, such as Territory Runner, will let you define opportunities according to your own criteria, as we realise that territory balancing will be different for a cleaning franchise than it will be for a business coaching franchise.
The results are profitable, balanced territories that offer a tempting investment opportunity for highly motivated franchisees. They can maximise their profits within a dynamic territory that can respond rapidly to market changes. Dynamic software that lets you refresh data in real-time through uploads that are made available to all your franchisees and salesforce, makes territory balancing an option whenever you need it.
There is no need to wait for your territories to become obsolete before you balance them. Regularly tweaking the number and boundaries of your territories lets you retain your competitive edge and expand your business sustainability.
The Franchise Territory Optimisation Guide
More information on territory balancing, territory management software and franchise marketing can be found in our Franchise Territory Optimisation Guide. Learn how to optimise existing territories and plan strategically to attract the best franchisees and expand your business. Click here to download your copy.