Five tips for effective Territory Planning

Territory Planning should use facts and data, not guesswork that has evolved. Territory planning relies on a few simple steps to provide the best result that suits you and your concept.  

Many territory planning schemes have come from the “Beer and Pizza” approach, normally started with a few franchisees and the franchisor over the board table with a large map, beers and a couple of pizzas.

The two big questions we are commonly asked before a territory planning project commences are:

• How many territories should we make for a particular market? 
• How do we make each Territory of similar sales potential?

Step 1 - Where does my crystal ball say we are heading?
Before an effective territory planning job can be done, a Business Plan needs to be in place to determine where we are heading. This plan is your plan, created by you on where you believe the business can go. To move forward you need to ask yourself honestly “Where am I heading long term?”.

Ask yourself “What total revenues do I believe this great new concept can generate in 5 and even 10 years if my business expands as I envisage in my home market”? This will give you an answer and logic like:

I have 2 shops, or I have a small company running 3 vans in a particular area. I currently am doing $1,000,000 turnover from the business, and really only covering a small portion of my total market. With advertising and promotion, in 5 years my business plan says we will be selling $10,000,000, and then 10 years out we should be doing $16,000,000in our target market.

What revenue will make a business successful, based on your knowledge of the business and some form of forecast Profit and Loss Statement?

You may have an answer, like a turnover of $300,000 will make a reasonable living for the operator (or franchisee), or as a contribution back to Head Office, but if you are turning over $400,000, you will be considered successful and generating a good living (say $80,000 - $100,000) for a franchisee or as a return to Head Office.

This logic and simple calculation would suggest the following:
In 5 years we should have about 20 - 25 territories ($10M / $400,000), and in 10 years around 40 ($16M / $400,000) in our home market.

This tells us where we should be aiming in our home market. If we think in terms of a chessboard, we are best to cut up to the number of territories we plan for the long term, as we can always ask a franchisee to have their core territory and care take some others for what may be some years. In the long run, if you have a vision of how you want the mature business to look, then you should be setting things up in that direction.

In the scenario above, we should be cutting up our market into 40 territories, even if we only franchise 4 out initially and have each franchisee looking after another 9. In 2 years time, we may have 8 franchisees, each looking after 5 areas. In 5 years time we may have 20 franchisees looking after 2 each, and at 10 years we plan to have them all filled.

The worst thing we can do is only cut 8 territories for now, and in 2 years time we are back with each franchisee begging them to let go, so we can cut up more territories.

Tip 1
It is better to cut too many territories based on the long-term vision of where you want to be long term than too few, and have to try to split up territories from franchisees in the future.

Step 2 - How big are the major Australian Cities?
If we know how many franchises or stores we believe should be in the home market, we can calculate how many we could have nationally. The figures below offer the relative population and numbers of households for the five major capital cities in Australia:

• Sydney (incl. Newcastle / Central Coast / Wollongong) - Population 4,382,478
• Melbourne (incl. Geelong) – Population 3,452,491
• Brisbane (incl. Gold Coast & Sunshine Coast) – Population 2,195,094
• Perth (incl. Rockingham & Mandurah) – Population 1,391,303
• Adelaide – Population 1,029,560

• Sydney (incl. Newcastle / Central Coast / Wollongong) – Territories 35
• Melbourne (incl. Geelong) – Territories 28
• Brisbane (incl. Gold Coast & Sunshine Coast) - Territories 18
• Perth (incl. Rockingham & Mandurah) – Territories 11
• Adelaide – Territories 8

Experience shows in Australia, that for 100 stores or territories in the five major capital cities, most businesses will open 25 to 35 across the rest of Australia. This is normally not quite proportional to population, as in many cases, you must have a substantial major town to begin with, especially if it is a retail concept. 

Tip 2
The basic ratios for number of territories in a Territory Planning job of one city to another should be done on basic population. Whatever the total numbers of territories are across the 5 main capital cities, there will normally be another 20 – 30% of territories available in the country.

Step 3 - Territory Planning for Business to Consumer business – B2C
The most common unit of area used is the Postcode. It must be remembered that there are two types of postcodes.

• The first type is the Australian Bureau of Statistic’s Postcodes. These do not change between Census and are one of the units that our Census data comes at. 
• The second type is Australia Post’s postcodes. These can change in small amounts on an annual basis, as there can be a need to alter postcode boundaries, or add a new postcode.

If a territory planning Project requires maps to define territories, we normally recommend that Australia Post’s postcodes be used, and the date (year) be specified so there is no doubt on how the territory boundaries are created.

We now need to break down the number of territories established in the new long-term business plan to understand what will make up an individual territory. The main aim should be that each territory or sales area offers the operator a similar amount of sales opportunity.

Units of Demand should be created for each postcode in the market area based on population, households, businesses or employees, with a method to increase the potential demand of a postcode if it is favourable to what we are selling, or decrease it if unfavourable. Census variables such as age, income, family type, or business variables such as type of business or the ratio of white collar to blue collar workers are all factors that may be used.

Once the algorithm is established, the number of Units of Demand for each postcode can be created. If these are then totalled up for the market (i.e.: Melbourne or Sydney) and divided by the number of territories required, we can calculate how many Units of Demand are needed for each Territory. It is then a matter of cutting up the market to provide combinations of geographically suited postcodes to make territories giving the correct amount of Demand.

As an example, a lawn mowing business or franchise may have discovered from Market Research that their target customers are high-income households. People in the higher income brackets have double the probability of using their business than people in the lower income brackets.

It can therefore be deduced:

• 10,000 households in Sydney’s Eastern Suburbs offer 15,000 Units of Demand 
• 10,000 households in Sydney’s Western Suburbs offer 7,500 Units of Demand

When we calculate every postcode in Sydney based on the number of households (1,425,000), and the average income of the postcode, we may find we have 1,500,000 Units of Demand.

The Franchisor or Head Office has decided from the research on what makes a territory large enough to sustain a business, they can operate 50 stores or territories across Sydney. Knowing not all postcodes are of similar size, they have concluded that each territory should have between 27,000 and 33,000 Units of Demand.

Across Sydney Metro there are 260 postcodes, so they would be grouping around 4 – 7 postcodes together to make a territory of between 27,000 – 33,000 Units of Demand.

Once this process is completed, they can produce a map of the Market, and then individual maps showing the exact territory boundaries to be included as marketing areas or within the Franchise Agreements.

Tip 3
Make each area of similar potential for the Franchisee. That means better areas will have less people, and areas that are not so favourable to your product will have more people in each territory.

Step 4 - Territory Planning for Business to Business – B2B
Many territory planning jobs undertaken by Spectrum Analysis are for businesses that see themselves primarily as a B2B business, for example; printing, commercial light maintenance, business loans, and sign manufacturers.

Spectrum Analysis still uses a concept called Units of Demand, and what we are trying to establish is how much demand comes from each block, usually postcodes, that we can use in building the territories.

The information we have from the ABS tells us at SLA level how many businesses there are by size and type.

The size criteria they use are: 
Non employing businesses (shelf companies or owner operators) 

• 1 – 4 employees 
• 5 – 19 employees 
• 20 – 49 employees 
• 50 – 100 employees 
• 100 – 200 employees 
• 200+ employees

The type of business definitions they give us are the ANZSIC categories or the business descriptions they use in defining what type of business you are in:

• Agriculture Forestry and Fishing
• Mining
• Manufacturing
• Electricity Gas and Water Supply
• Construction
• Wholesale Trade
• Retail Trade
• Accommodation Cafes Restaurants
• Transport and Storage
• Communication Services
• Finance and Insurance
• Property and Business Services
• Education
• Health and Community Services
• Cultural and Recreational Services
• Personal and Other Services

A matrix is then constructed to consider how much additional opportunity comes from each size of business, and which category of business they feel best suits what they are selling.

If we consider a business of 1 - 4 employees worth 1 point, then what is a business of 5 – 19 employees by comparison in terms of opportunity to you? You may say the 5 – 19 employee business potentially offers 4 times opportunity for what you sell than a 1 – 4 business.

An example may look like:

• Business size 1 to 4 employees – Opportunity 1
• Business size 5 to 19 employees – Opportunity 3
• Business size 20 to 49 employees – Opportunity 5
• Business size 50 to 100 employees – Opportunity 8
• Business size 100 to 200 employees – Opportunity 15
• Business size 200+ employees – Opportunity 20

For example, this says a business with 20 to 49 employees offers 5 times the potential of a business with 1 to 4 employees.

Spectrum Analysis believe that in many cases, there is some variable that says some types of business are more suitable to your concept that others. We look to rank the business type you feel best suits your sales as a 10, and then think of each other type on the list and rank from 10 down to 0 – never sell to that type of business, ever. You may not have a 0, but the lowest may be a 2 or a 3. 

Example of Demand Estimate matrix with the value to your business stated after the category:

• Agriculture Forestry and Fishing - 2
• Mining - 2
• Manufacturing - 4
• Electricity Gas and Water Supply - 1
• Construction - 8
• Wholesale Trade - 10
• Retail Trade - 6
• Accommodation Cafes Restaurants - 3
• Transport and Storage - 10
• Communication Services - 2
• Finance and Insurance - 3
• Property and Business Services - 3
• Education - 1
• Health and Community Services - 1
• Cultural and Recreational Services - 3
• Personal and Other Services - 4

Some businesses may say a difference in Type of Business cannot be determined, and that is quite okay, as we shall just value each type of business as equal potential to you.

Once this information has been obtained, we can then create how many Units of Demand there are for every postcode in the market we are creating territories for. Additionally, if we have already agreed on how many territories are to be cut, we divide the Total Units of Demand by the number of territories, and that gives us the basis to work from on how many Units of Demand approximately will be in each territory.

The aim is then to make each territory of approximately equal demand, but we are limited by the size of the postcodes, as we try to keep to whole postcodes in each territory, and are reluctant to cut postcodes as:

1. We cannot accurately measure part postcodes as the business data’s lowest level as supplied by the ABS is postcode level
2. It then makes it very hard to describe territories without exact maps 
3. The average potential franchisee understands postcodes

Tip 4
If running a B2B business, do not concern yourself about small area populations, but concentrate on what type of business you market to, and what size of business suits your product. In many cases, once a customer passes a certain size, they may no longer use your type of service, but do that work in house. This may mean your strength is in certain types of business up to a certain number of employees. 

Step 5 - How do I describe my territories to a potential franchisee?
Spectrum Analysis has developed a high value information package that assists franchisors and/or franchisees in understanding the areas in which their business operates. Having done the territory planning for the business, each territory can be identified, mapped, and all the relevant information supplied.

Major data sources include the 2006 Australian Census of Population & Housing, and the 2007 ABS Counts of Australian Businesses, which provide insights into where potential customers live and work, respectively. The data from these and other sources is presented as tables, and also graphically in maps.

A Data Pack consists of any combination of the following sections described below (additional custom sections can be included by arrangement):
Loca

1. l Area Fact Sheet 
2. Demographic Summary 
3. Business & Employment Summary 
4. Map of Local Area 
5. Land Use/Zoning Map 
6. Map of Household Density 
7. Map of Target Market Index 
8. Customer Heat Map 
9. Business Distribution Map & Business Hit List

Spectrum Analysis has entered into a partnership with Impact Lists, who hold and maintain a database of approximately 675,000 businesses throughout Australia.

Spectrum has encoded the entire list, so Business Hit Lists can be produced for not only postcodes or suburbs but any size or shape of area. Each record in the list contains the Company Name, Address, Phone Number, ANZSIC Classification Title, and Business Type.

A Business Distribution Map can also represent the geo-coded business records. All the business points are colour coded based on their ANZSIC Division title. This map can provide guidance on where to find concentrations of potential customers, suppliers, competitors, or generators within a given area, which has applications in site selection, distribution chains, and targeted marketing.

More details on the Business Distribution Map and Business Hit List are available on request. 

Tip 5
If you wish to sell your new territories that you have derived from your territory planning, invest in having the information professionally displayed in the form of a Datapak.

Spectrum Analysis  offer franchise advisory services and franchise territory planning services.