GeoMetrx

A Service of Geographic Enterprises

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.