Planning territories
Planning territories… I could spend half a day talking about territories. We’ll try and run through this just to get you a bit of a glimpse and see, really, what it comes down to.
You need to get the size right
It’s an opportunity, territories, to make huge differences to the amount of money you’re going to recover from your business. Just imagine, if you make small territories and it actually turns out they’re too small to support a franchisee. You’ve got a really big problem on your hands.
Let’s imagine, on the other hand, you’ve managed to create something that’s too large. For example I know of a water purifying business which started in Melbourne and then set up in Perth with a franchise which covered the whole Metro Perth area. After two years, the franchisee was doing well but covering only a small section of his territory. The franchisor, said “I want you to expand” and they said “no we’re quite happy, this is as big as we want to be.” They didn’t want to grow any larger. But the franchisor had no way with his Legal Agreements to be able to change that situation and force them to expand. So what he ended up doing was paying a fortune to buy them out, to set up eight territories.
Now that’s a situation which, with foresight, you can plan for with easy solutions for fixing such problems.
So you can see the difference from this franchisor’s point of view, he was able to increase his business volume by five, six, seven times once he set those additional eight territories up. So it’s important to understand that if you make territories too small or too big, you end up with disputes, you end up with very little fee income and you’re going to be, basically, behind the eight ball all the time. So it’s important to understand that.
Working out the size
When it comes to territories, there are different ways of working them out.
Do you need a carefully specified territory which protected with a brick wall or does it need to be fairly loose so you can add elements?
There is what we call the Preferred Marketing Area or PMA where, there’s an area where a franchisee is allowed to advertise but they can actually also take on clients from areas outside. Does that make sense? They can go beyond that territory. Say you allocate the Gold Coast and but the franchisee can actually operate, maybe up into the mountains, up the coast, providing they are not treading on someone’s toes, but they can’t advertise outside of the Gold Coast.
Start with a few
When you first start your franchise, you’re going to start the business in an evolutionary way. You’re going to grow, you’re going to add territories as you grow and we’ll cover some aspects of that because there’s strategic ways of doing that which is much more effective and much simpler than taking the risk and opening territories here, there and everywhere. You have to optimize your expansion, keep your work down to a manageable level, and not get caught flying forwards and backwards in areas or driving hundreds of kilometers regularly to catch up with people spread far and wide.
The other thing is, some people like to plan their territories up front for the whole country, and I must admit we’re guilty of this in the early days when we started our window cleaning franchise. We got the maps of Australia up on the wall, we had all these flags everywhere, and we wanted to understand every territory in the country. But after a while we realized that every territory size needs to change a little bit but also, why do it? You spend lots of wasted time setting something up which needs to change in the future anyway, when you could be out there to get the business running. So do what you need to do and then the rest of it will evolve. You will probably have someone do that for you later on. But obviously, to begin with, you want to keep your time and your investment minimized within reason when you’re setting up.
So when it comes to territories, it’s up to you to really do that work and there’s going to be a cost in your time and your staff’s time, your consultant’s time. So what you’re expecting to present to a franchisee is the territory which is specifically for them.
There are other bits and pieces to think about with territories. For instance, as I mentioned for example, splitting territories is an option you have. So you can put that option into your process and you will need to include that in your franchise agreement. There are all sorts of things you need to address. And when another franchise comes along and adjacent to an existing one, how do you handle that and the clients in that area? Very simple if you know how to do it, if not, you’re demarcation areas in disputed and it’s a bit like being on the wharves. Suddenly, before you know it, you’ve got people putting up their flags, so you’re going to have to avoid that.
The person that I work with and respect enormously is Peter Buckingham and we’re fortunate enough to be able to use his intellectual property. Some of my clients choose to work with him but everyone gets access to him. I’ve used some of his information in here today which I hope doesn’t confuse you. I’m just showing you some of the materials we use to show how powerful territories are.
Don’t spread them too far apart
Just to start with a little case study I always find this interesting and this is quite a useful example to show you. There was a fellow who was about 17 year’s old going through university. It’s amazing how many franchises started off as university students, quite a number. Anyway opened a sandwich shop. He didn’t have a lot of money but he put a thousand dollars in. This was some years ago. He had a family friend who happened to be a lecturer in the college he was studying at and they put in $500 each. After twelve months, they had $70 in the bank. And they said “what should we do? Should we close down?” and as he says, he was 17 years old and didn’t know better. So they opened another one, the second store. And that went alright and then the third store. At that point, they changed the name from Pete’s Sub to Subway.
What he did in that process accidentally, was to create a model that is a very, very successful formula for growing a business, for growing a franchise. I call it the Olympic Ring’s principle. Because what’s happened here is, there’s the first and that’s the second one just outside the initial territory, that’s his third one also close by and what happened when he opens his third one is that people in there have already seen the brand so there’s already an awareness. And you’ve built the business up large enough at that point so it’s not going to be impacted when this third store opens.
When I was in Bedshed, we didn’t have designated territories. There was understanding we had a local newspaper area of 23,000 people. When the franchisor put one a few kilometers up the road from me, I was livid. I felt that was me, I’m done. And in fact, what happened, the other store opened in Melville, I was in Freemantle, my sales levelled off for a month then they carried on growing. Eventually I bought Melville. And another one down the road. They all add to your overall branding value. So they’ve all got a component.
Now franchisees are terrified about competition. They all want to have everywhere to themselves. So part of your strategy when you’re interviewing people, is to sell them the benefits which I won’t go into now because that comes up later on. But you can see how that process of developing territories is a very successful formula.
When the guys Beyond Rest in Perth came over here for a weekend workshop, they said “we’re seeing somebody on the Gold Coast because they’re going to have a franchise from us” but at the end of the weekend they realized that it wasn’t a sensible thing to do. Because they would spend their time on the red eye flying backwards and forwards managing somebody on this side of the country while they’re supposedly running the business in Perth.
So it’s important to understand.
Science or feeling
As Peter refers to it, do you use the wet finger in the air technique when it comes to working out your franchises? Or do you use a targeted approach, so you can look at the quality of the people or the types of the business or the quantity, just the pure numbers. It’s important to understand this. Or you get in to look at the statistics a little bit deeper where you’re looking at the true demographics of the sort of people that are there. This is something to consider.
Then there’s different factors.
Depending on your business and who your customer is, you will be looking at different profiles from your ideal client or ideal customer. So you can appreciate, the profile is going to be different looking at your clients, your customer, your current customer to when you start looking for your franchisees. Franchisees and customers have got different objectives in life. So we’re looking to sort of parallels to that.
But some people rely on shopping centres. You know, Boost Juice grew because it’s the shopping centres which we love so they just put on one in every one. And that’s why franchising grew so rapidly in Australia. We are the world leaders in shopping centres whether that’s good or bad, I’ll leave that with your judgement. But the fact is, every few months there’s a new shopping centre opening. Hey, here’s a new Donut King, here’s a new this and that.
But also plan for the future
You also are going to need to look forwards.
Up where I live, Hope Island, development ground to a halt when GFC came there were vacant areas – acres and acres. And there’s a McDonald’s and a Subway there and I think they’ve been bleeding for five years because the population didn’t arrive. What’s happened in the last 12 months is that everywhere is being built. Houses going up like it’s going out of fashion. I think those guys are rubbing their hands and saying “payback.” Because they’ve got the site.
But you’ve got to be conscious of the initial difficulties. So if you’re giving somebody an outlying area with a site off a development plan where there are few people initially, you want to have the vision that in the future the territory can be subdivided, because with the growing population they will have more than they can handle.
So then you come looking at the sorts of factors that affect your business. First you need to know your prospective customer, your client. Now, whether it’s business to business or business to consumer/customer, you need to know the sort of people are there. A term I like, which I borrowed from Mal Emery, is your Avatar. Who is your ideal customer? Once you know that profile, that’s the person you’re always looking for, that’s who you’re going to aim at in your advertising, with your packaging and everything else. And then the language that you use, is you’re going to communicate in their language, not in yours, necessarily. So that’s important to understand. And your strategy is going to take all that into account.
When we’re looking at territory planning, you do need to be conscious of the long term.
A lot of successful franchises from elsewhere who have opened up here have failed. Starbucks have just been brought up in Australia by the 7 Eleven group because Starbucks just didn’t succeed in Australia. The Starbucks franchise just arrogantly thought they’d be able to come in and just do it. But it’s not necessarily that easy.
Clive Peter’s were bought out by Harvey Norman. Krispy Kreme have gone under twice. They took it for granted that everybody in Australia wouldn’t love their products. They persevered, put millions into it and now it looks like they’re finally on the right track.
So you’ve got to plan for Australia-wide but you don’t need to go there and put flags on all the territories. But just be conscious of when you’re going; make provisions.
And then you’re going to look and say, ‘Am I going to be proactive versus reactive in working out my territories’. What do you really need from that point of view, it’s just that something you’re going to need so manage. What that refers to is, Peter Buckingham used to work for Caltex, he does their worldwide demographics for when they start opening shops in their petrol outlets and he still does. He said that someone would come along and says that they want to open in Broom in WA and the habit of the sales people is well, yeah, that’s a sale, just open in Broom. What Peter said was, ‘No.’ we need a progressive plan – we don’t go there until we want to go there.
If you live in Perth, you can open in Perth or in Albany or somewhere but we’ll have to wait for Broom. So don’t be driven by demand, necessarily. Just be careful.
So make sure you know what your next step is. Pick the low-hanging fruit. It’s as simple as that isn’t it?
Some examples
So I’ll run through a little bit of information now. I’m going to compare some demographics. Basically, what you’re looking for is equality in financial return. Now that means maybe different sorts of populations, of different sizes, depending on the nature of the people in that area.
So to give you one example, Toorak. Just look at a couple of numbers. We won’t go into forensic detail but the average income’s about $2,000 a week, mortgage repayment is $2,700, rent $380.
Then look at Mosman Park in Perth where you see a difference in the income and in the rent. So this is a similar area but not quite the same. So you will make some adjustments in your expectations on how many clients you’ll get.
Then you go south of Perth, down below Freemantle which traditionally is a more blue collar area and you’re looking at a very different picture. Income is less than a thousand a month which is half the income. So the amount of disposable income to purchase your product, if that’s applicable, is going to be 50% of that in Toorak or Mosman Park. You need to take that into account in your expectations.
So that’s just to give you a bit of an idea.
Let me look at home ownership. That’s important in someone like a builder specializing in renovations, where they are generally going to be refurbishing houses around the occupiers as opposed to landlord owned premises who are investors. And that’s important to understand. So the customer you will be targeting will be home owners with income to spend on renovation.