When setting goals for a franchise, such as how to generate more customers, more revenue and more profit, there are a number of elements to consider.
Let’s begin with ‘more customers’ – a statement that has two meanings to a franchisor. Assuming your franchise model is territory-based, the first meaning relates to the recruitment of franchise owners – ‘customers’ of the franchise territories you have to offer.
The second meaning relates to the end customers of your product or service, those people your franchise owners rely on to provide income to them and you. So, what can go wrong here?
Well first, these two are interconnected by the end customer profile. To create the right number of right sized franchise territories, it is crucial to know what your end customers look like in terms of the characteristics and demographics that differentiate them from people unlikely to buy your products or services. This is their profile. Without this knowledge, there is no way to even attempt to understand the market potential and how that might be spread over the geographical area you plan to franchise.
Assuming your customer profiles are well defined, what can happen next is that the way territories are created can actually ignore this information.
Territories are often created in less than ideal ways. They can be circular – with the centre point simply placed where a potential franchise owner is located and ignoring the fact that the circle can overlap with another franchise owner, or even that half a territory can fall into the sea. Then there are territories created on-the-fly – using Postcode Areas (the outer part of the UK postcode system such as PE) – due to their convenience and the availability of ready-made maps.
Next come territories that are easier to sell as they are placed in what can appear to be the best locations but this can leave massive holes and un-sellable areas. Worse is that territory shapes or their placement often ignore the underlying end-customer demographics – i.e. where your end-user customers can be found.
Finally, there are instances where territories appear to have been created professionally but, to save time and cost, have unknowingly been created by using out of date cartography (maps and postal files) and skimped on the important balancing analytics.
Now, what detrimental effect can this have on the business. Well first, in terms of ‘more customers for the franchisor’ – i.e. more franchise owners – this cannot happen. The territory infrastructure simply will not allow it. Not only will it be impossible to maximise revenue potential, but selling the territories will be far harder as there is no scientifically designed infrastructure that has been optimised and balanced to deliver the same potential income stream to each and every franchise owner. When a franchise owner does purchase a territory, they may well find conflict with adjacent or overlapping franchise owners and because their territory doesn’t comprise the right mix of potential – sufficient of the right type of prospects – their own number of customers will be less, as will be their revenue, profit and contribution to the franchisor.
This is bad news all round as franchise owners will fail to meet targets and become disillusioned, their income will drop, the franchisor’s income will fall and it will be very difficult to sell the number of territories needed to turn an average franchise business into a good franchise business.
I leave you with a suggestion – consider using a professional business consultancy and analytics company to develop an optimised territory infrastructure for your business. A company that has in-depth knowledge of the franchise industry built up over many years, with an established client base who you can talk with to judge their experience. Investing in the right solution from the outset will not only maximise your likelihood of success, but help ensure you extract maximum revenue from your franchise business.