Types of Franchise Territory Agreements

GeoMetrx , franchise mappingAs a business owner, especially one with a successful business plan and execution, the possibility of franchising will always present itself. Deciding to go into a franchise agreement does not work out the same for everyone. Franchise agreements grant a franchisee the right, for a fee, to operate a single franchised business, pursuant to the terms as set forth in the franchise agreement.

Heading into a franchise agreement, there is a need to consider the pros and cons of franchising in general and then identifying the type of franchise agreement that works for you. There are several benefits of entering into a franchise agreement; however, we will focus on what are considered to be three of the major pros. These include: easy expansion capital, a minimized risk of growth and access to better talent.

If you are interested in expansion but do not have the requisite capital, franchising is a good way to get around this. Franchisees are the ones who pay for the outlets and so as an owner, you are able to grow your locations without the added expense. Similarly, the risks associated with growth are reduced and depending on the quality of the business model, earnings in royalties from the outlets are sure to surpass what could have been made if you had opened your own outlet.

In contrast, entering into a franchise agreement gives you; less control over the business operations as franchisees are independent businesses and as such, you cannot tell them what to do. There are also challenges where innovation is concerned as negotiations with these independent owners become more difficult.

Keeping this in mind, if you decide that you are interested in franchising your business, keep in mind that there is additional research needed to determine the type of agreement that works for you.There are 4 basic types of franchise agreements: Single-unit, multi-unit, area development and master franchising.

The single unit franchise is where a franchisor grants a franchisee rights to open and operate one single franchise unit. The multi-unit franchise is where a franchisor grants a franchisee rights to open more than one franchise unit. Meanwhile, an area development agreement allows a franchisee the rights to open multiple units over an agreed amount of time within a specified geographic location and a master franchise agreement, also referred to as sub-franchising, gives a franchisee the same rights as an area development agreement but also gives that franchisee rights to sell franchises to other people within its territory.

Let GeoMetrx help you optimize your franchise territories. Contact GeoMetrx today for a customized demonstration.

What are the Most Common Mistakes Franchisors Make in Defining Territories?

Territorial issues are one of the main areas in which disputes arise, and in an exclusive territory franchise agreement there are often good grounds for franchisees to jump up and down.

(1) Inefficient Methods of Defining Territories

One dimensional territory methods, such as a radius of a number of miles, driving time, or a territory bounded by zip codes municipal limits and natural boundaries such as rivers rarely measure the full potential of an area, which can cost you lost business.

Overlaying multiple pieces of business data onto a map enables your ability to fully define a territory’s capabilities for the optimum size, to manage impacts such as the loss of a franchisee or the relation of an existing franchisee, and to modify or create new territories.

(2) Changes to Territories

Potential conflict from redrawing boundaries due to:

  • Franchisors that create a new franchise territory because the existing franchisee is under-utilizing the territory.
  • Franchisors trying to allow new franchisees to operate franchises either within what the existing franchisee “thought” was his own particular territory.
  • Assigning too large a territory in the early years of the franchise.
  • Latent market demand or market condition changes that cause an increase in the potential of the territory as consumer awareness of a particular product or service gains recognition.

It is easier to give a franchisee a limited area and to agree to widen it if the business is succeeding than to give a person a large area and to take it away or subdivide it if the territory is not being utilized to its maximum potential.

Franchisors typically want to award exclusive territories that retain some flexibility for modification if market conditions change.

(3) Monitoring for Data

Established franchises that have a “set it and forget it” mentality regarding territories may miss out on growth opportunities. Mapping services, like GeoMetrx, provide up-to-date regional demographic and business data for franchisors to monitor. By overlaying this type of data, a franchisor can clearly see shifts in particular territories and make adjustments fairly quickly.

Many franchise agreements give the franchisor the right to change the territory or alternatively start up a new franchise within the territory should circumstances arise that will allow the territory to sustain another franchise operation. It is not uncommon to see a right given to the franchisee which requires the franchisor to offer the franchisee the first right of refusal to purchase the new franchise operation commencing within the territory.

(4) Management of Change

Destabilizing factors within a franchise territory such as growth in the customer base, new shopping centers and/or businesses, and competition, can cause unforeseen changes and need to be addressed quickly and efficiently.

Mapping software can be used to manage these changes within existing territories more efficiently. An important use of the mapping is to allow the franchisors to clearly see how a territory may be redrawn, in relation to existing customers, towns, transport routes and natural geographical features.

(5) Monitoring Data

Another benefit of mapping technology is the ability to produce analysis very quickly. An overlay of customers could be created, which can be overlaid onto the franchise territories map. This might then be used to generate benchmarking reports that facilitate performance comparisons between territories. More detailed reports about individual area, for example, can show the mix of businesses, by size or activity type; or to look at competing suppliers or franchises in an area – either of which could have a significant impact on the ability of a franchisee to exploit his/her assigned territory.

For the secret to franchising success is, and has always been, marketplace saturation sufficient to outstrip and preempt the competition, to foster broad brand name recognition, to yield significant collective purchasing power, and most critically, to garner optimal advertising penetration within any given market.

Traditional territory mapping by zipcode, radius, or driving time tells a one-dimensional story whereas GeoMetrx provides a deeper interpretation for faster, more profitable decision-making.

If you are ready to optimize your territories, see how we can help.

Tips for Successfully Franchising Your Business

sub shop map1Franchising is a great way to grow a business. There are generally 3 reasons why a business would franchise.

Time, People and Money

  1. Capital. A business can expand using other people’s money without equity or debt. The franchisee is responsible for the entire start up investment. They sign the lease, hire staff, and working capital to operate.
  2. Highly motivated management. Franchisee is motivated by the fact they are owners in this business, their own capital is invested.
  3. Time. Looking to grow and see a market opportunity but don’t have the resources to expand as fast as you would like. The franchisee will free up your time because they are doing lease negotiations, hiring, and doing local marketing. By leveraging other people’s time and money a business can grow and expand faster than if they tried to go it alone. Not every business should become a franchise, however, if your business goes down that path, here are few things to consider.

Interview, Don’t Sell

A business that considers franchising as an opportunity to “sell”, might end up with the “wrong” franchisee. A mutual qualification process is not the same as a sales process. Just like interviewing to hire for a job, franchisors are not selling but interviewing prospective franchisees. This subtle mindset shift from selling to interviewing can have a huge impact on the success or failure of the franchise.

A major objective of a franchise is to help the franchisee succeed. In order for the best opportunity of success, Franchisors need to select the “right” territory for the “right” people who have adequate capital and skill sets, and are sufficiently motivated to succeed.

Know the Investment Costs

The franchisors need to be fully committed to franchising as a means of expansion, including the financial investment required.

Depending on how aggressive a business wants to grow, there are costs involved with expansion. Franchises need to develop good quality marketing materials and invest in proactive franchise marketing, not just put a link on their homepage saying Franchise Opportunities.

Additional costs to consider are developing quality operations manuals, as well as investing in a territory mapping service.

Develop a Rock Solid Plan

Franchisors, as entrepreneurs, have a “ready, fire, aim” mentality. They tend to shoot before they aim. Maybe they got a random inquiry off their website about a franchise, or someone told them they have a good idea, and start down the path of developing into a franchise without first planning. Interest is a good indication of a saleable business, but without proper planning, unforeseen snags are likely to derail the idea.

“If you don’t know where you are going, any road will get you there.” ~ Lewis Carol

Planning allows a franchise to grow in a manner that best supports their franchisees.

Planning helps to better understand:

  • what they need to do for creating a franchise,
  • who they need to hire,
  • when to hire,
  • how much to pay staff,
  • figuring out which markets they should attack first,
  • where they need to spend their capital, and
  • mapping the territories for most equitable opportunities for their franchisees.

Giving Franchisees Equitable Opportunities

Franchisees are highly motivated to become successful business owners and are evaluating your franchise as a means of reaching their dreams. One of their criteria in selecting their next business is the available exclusive territory opportunities.

A common complaint comes from franchisees of large franchise systems; where franchisors sometimes allow the establishment of additional franchises in close proximity to existing franchisees. Optimal franchise territories creates a win-win scenario for both the franchisor and its franchisees. The better franchisors focus on earning income through the operation of the franchise and the royalties generated through franchisee sales rather than cannibalizing franchise territories by selling new franchises into them, when the addition of a new franchisee will not increase the level of franchisee sales at all.

GeoMetrx provides franchisors the ability to:

  • Easily design territories with data
  • Create maps and report outputs to share with others including franchisees
  • The Alignment Panel enables you to dynamically build territories on map
  • Optimize large areas to build equitable territories quicker
  • Provides a Macro & Micro view of your Districts / Regions / Territories in order to visualize better

Traditional territory mapping by zip code, geographic radius, or driving time tells a one-dimensional story whereas GeoMetrx provides a deeper interpretation for faster, more profitable decision-making.

Remember, Franchisors fail when their Franchisees fail.

Map Collections (Map, Atlas and Globe Museums)

Maps help us to understand and manage our world. Reaching all the way back to cavemen and the Stone Age, drawings can be found depicting hunting grounds, water sources and other crucial life sustaining information. Prehistoric man marked their ‘roads’ with symbols to guide hunting parties towards their prey. Early sea-faring explorers used the stars to navigate and produced hundreds of maps in the process of discovering the ‘new world.’ Lewis & Clark spent nearly two and half years exploring and mapping the territory of the Louisiana Purchase hoping to find a water route to the Pacific Ocean. Today’s technology has taken mapping to a new level and there is very little, if any, uncharted territory remaining undiscovered or unphotographed. We are even making great inroads in mapping the universe, though the “end” still has not yet been found, but that’s another topic altogether!

We map our neighborhoods, our buildings, our shopping centers, our schools, our museums and everything in between. Understanding our surroundings, sharing that information, and using it to navigate and manage our lives is something we do every day. Smartphones and GPS systems immediately assimilate current traffic conditions and route us off our regular paths to avoid traffic jams and construction zones. Navigation systems track our progress and predict our arrival time – in fact, they are the quintessential backseat driver and are anxious to let you know if you’ve made a wrong turn. You can even decide whose voice does the nagging!

Hand drawn maps and globes have become a thing of the past in our modern digital world. These items are now becoming relics of a time gone by… but they are not forgotten. There are four major world map collections available to the public featuring maps, atlases and globes. Two in the U.S., one in Austria and one in Belgium. There are many other museums around the world that also include other cartographic treasures, but these are the four largest and most focused map collections available today:

  • University of Wisconsin (Milwaukee, WI)
    Little known to many, the University of Wisconsin is home to over one million mapping artifacts, readily available in its library, which were acquired in the late 1970s from the American Geographical Society.
  • Map and Atlas Museum (La Jolla, CA)
    This museum is focused on creating an educational environment for young and old to appreciate geography, history and politics through the artistic beauty of antique collectible maps and atlases.
  • Globe Museum (Vienna, Austria)
    The world’s only public museum dedicated to globes, both terrestrial and celestial, featuring tiny plum-sized to giant man-sized examples, folding fabric to fine wood specimens and much more.
  • Mercator Museum (Sint-Niklaas, Belgium)
    This museum provides a chronological story of cartography from ancient times to today, with the figure and work of Gerard De Cremer (aka Gerard Mercator, 1512-1594) placed in the spotlight.

We hope all of you have the opportunity to someday put a pin in your travel map at each of these fascinating map collections destinations.