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How are franchise territories defined?
Franchisors define trading territories using a variety of criteria, but let’s look first at how they should be calculated.
An established business will be able to assess its historical performance to work out what its market share has been, given an area containing a certain number of customers for the product or service. Bear in mind such customers could be defined simply by total population, population of a certain age profile, number of owner-occupied homes of a certain type, total number of small businesses, number of a particular type of business, or even number of households with gardens, young children or pets.
Once the business has worked out how many potential customers are needed to enable a franchisee to meet its targets, it knows how many potential territories there are in the country.
It’s then a question of defining the boundaries of these territories, and this is often best done by using postcodes, as it is possible to acquire data that outlines how many of a certain type of customer exists in a particular postcode. Add together enough postcodes to get the desired number in a territory, then repeat the exercise however many times is necessary to map out the entire country, though note that circumstances change and the method should be kept under regular review.
Less sophisticated franchisors have been known to simply rely on county boundaries, local authority regions or Yellow Pages areas, but these tend to produce areas of unequal potential.
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