What do you need to know about territory planning?

Article published in Franchising Magazine Jul/Aug 2014 VOL.27/NO.4

WHERE WILL THE CUSTOMERS COME FROM IN YOUR NEW TERRITORY?

If you are looking to invest in a franchise system which is dependent on territories, then the planning of these territories is hugely important. But does the franchise system and the franchisor of the system give it the importance you need it to have to ensure your future?

Peter Buckingham explains what you need to know about territory planning...

A couple of large clients we work with have started their working relationship with us by showing us a series of paper based maps, and saying they have all their territories worked out, and just need a few “minor” issues sorted out, and all will be fine. In these cases our first week(s) of work was to copy all the individual territory maps into our mapping system to understand the issues.

The first problem inevitably is overlapping territories, where some areas are in more than one territory. The second concern is small slivers of land that are effectively in no-man's land.

What level of confidence does this give the franchisees when not only are they competing in the market to grow their business with their competitors, but fighting with their neighbouring franchisees and the franchisor just to understand their territory? One client of ours is so aware of a major overlap, that the joke in head office is that this specific overlap is known as The Gaza Strip!

These problems arise over time as the franchisor’s staff (who may have changed many times), do their best to represent the current geographies, and map out territories.

What many do not realise is:

1. Postcode boundaries can be moved by Australia Post to suit the market.
2. New postcodes can be added (normally new developing areas), and whole postcodes can be removed or combined (normally in some country areas).
3.  Unless there is a very good overall recording system, such as an electronic mapping system, these postcode changes will escape you.
4. In many franchise systems, it simply is not given the importance or horsepower to be kept up to date.
5. The potential problems it may cause in franchisee confidence and potential legal issues in the future.
6. The inconsistency in the business potential of different territories – why some work really well, and why some franchisees may be starving for business.

HOW ARE GOOD TERRITORIES DRAWN UP?
We are at a great time for a franchisor to fix their territory issues at present. Once every five years we have the full release of the Census, giving us reasonably fresh information to work with. The 2011 Census of Population and Housing costs us (the taxpayer) $440 million according to the Australian Bureau of Statistics (ABS) – and we should be using it.

In June 2012 37 variable were unveiled, and the final 10 variables were released in late October that year. The other information is SEIFA or the Socio Economic Index For Areas – or in other words where along a line do you live? The latest index was released in March 2013.

The Census data allows us, once we have mapped a system’s territories into a geographic to then measure each territory in many ways.

We can count the number of people, number of households, cars, computers and many other things you told the ABS you had in your house, and then we can understand the internal components of the households in each area in terms of average income, ethnicity, language spoken at home, employment and many other factors.

This time round, Australia changed its base geography from the old way of around 35,000 Census Collection Districts (CCD), to now 54,805 Standard Area 1s or SA1s, each with a population of between 200 and 800 people. SA1’s then fit into 2,214 SA2’ s, each with a population of between 3,000 and 25,000 persons (fairly similar to postcodes in size), then 351 SA3’s and finally 106 SA4’s.

What is important is that nearly every territory that has been drawn manually can be electronically copied, and unless the franchisor has used minor streets and lanes as the boundaries, most main roads serve as the boundaries between SA1s. Once drawn accordingly, all the Census factors can be measured.

If the franchise system is more a business to business (B2B) operation, then there is similar data available through the ABS to count the number of businesses and business types in any specific area.

For a home based or mobile franchise, it is very important to consider what is good or poor for the business concept, and make adjustments to the territory accordingly. Our aim is never to make every territory equal in its base number of households or population, but to make each territory similar in the amount of potential business it should offer each franchisee.

TOP TIPS
If you are investing in a franchise system, stand back and understand the long term numbers. 

Australia has a population of 23,457,978 (according to the population clock on the ABS website on the morning of 17/4/14).

If a franchisor says they want to give each territory 10,000 persons, then you are looking at over 2,000 territories Australia wide. For a point of reference, Jim’s mowing is reported to have around 1,600 territories, and probably the most of any service business in Australia. By comparison most of the lending institutions such as Mortgage Choice, ANZ mobile lending and Aussie, have between 150 and 200 territories.

If a franchisor says all you need is 1,000 businesses in an area to be successful, then theoretically there could be 2,300 franchisees. Maybe their long term strategy is to only have 200 or 300 franchises, but then why are the areas so small? And what happens if your area has one of the big four accounting firm’s offices, so there are thousands of shelf companies registered there? Probably not much profitable business will ever be done with such companies, unless you are a liquidating franchise.

The point is apply a reality check to understand what the franchisor could do if they were ever to fill all their territories, and what that could do to you, and the long term business.

If you are looking at taking on a mobile or home based franchise, ask the franchisor what research they have done, and more important, what assumptions are they making in working out your territory, and whether it has a reasonable chance of sustaining the business.

Also look at it in terms of what could happen in 10 or 20 years if they were to fill all their territories, and what could be the impact on your business? If the answer is cloudy or blank, may I suggest either:

1. Refer the franchisor to a company such as ours until this is sorted out properly or

2. Look at another franchise system.