Deciphering Data Messages to Maximize Your Revenue

November 21, 2016

To expand your business potential, a number of tactics that should be followed when mapping your franchise territory and crafting the strategy.

By Mike Mack

Franchising carries a lot of risk alongside potential rewards. A successful franchise is basically somebody’s wild idea, one who was able to turn it into a reality with the help of hard work and a good amount of luck (think Starbucks). Naturally, young entrepreneurs get inspired by such stories: if somebody made their idea work, so can they. And that’s how a franchise is born.

However, creating a solid franchising strategy can be challenging. It may not seem so at the early stage, but if you plan on expanding and really making the most out of your business, it gets a lot harder as you go. To do everything right and maximize your business potential, there are a number of tactics that should be followed when mapping your franchise territory and crafting the strategy.

Dividing the territory

This is, by far, the most important step that you need to take: divide your territory smartly. It looks easy on the surface (just give a chunk of the cake to anybody who offers the best deal), but as the number of your franchisees increases, you face a dilemma: Make the territory too large, and you will lose money. Make the territory too small, and you will kill your franchisee’s business.

How do you do it? There are two methodologies to solve the dilemma.

1. Safe Division: Dividing the Territory Into a Few Big Chunks

This is a good strategy if you know little about your target customers, population, geography, etc. Basically, you don’t have enough data to work with. This also means that you have very few franchisees under your command, so they can effectively take care of their own “chunk,” without overlapping each other — good approach if you are a beginner franchisor.

The idea behind this methodology is that without much data, your best bet is to give your franchisees as much space to work with as possible. This helps maximize their profitability, which in turn, generates profits for you. However, there are two flaws associated with this approach:

You will not be able to efficiently maximize the number of your franchisees. Growing the number of your franchises essentially means making their territories smaller, so they can all fit under the umbrella without any overlaps. To pull this off, you need solid data (geographic, demographic, psychographic, customer, etc.) to understand how much territory is needed for a given franchise to be successful, not just survive.
You will be losing money, a lot of money. By making the territories too large, you’re wasting the potential to acquire more customers. To put it simply, there will be a certain number of people in between those “big chunks” who would like to become your customers, but it’s simply too inconvenient for them to travel to any of your franchise locations.

2. Proactive Division: Dividing the Territory With a Plan in Mind

This strategy will require precise, solid and reliable data upon which to base your decisions. This way, you will be able to set the boundaries of your territories aiming at maximizing profits, while making sure that profitable territories (places with high customer density) will be able to support underdeveloped areas (places with low consumer density). To make the division correctly, you will need three sources of data:

Customer data: You need to know as much as possible about your target customers, everything ranging from demographics to their lifestyle preferences. This information will allow you to understand where your consumers are located and spend most of their time and help you divide the territories equally (in terms of value) among franchisees.
Customer count per territory data: This data will show how many customers a franchise territory should have to prosper. Remember that it’s in the best interests of the franchisor to have successful franchisees: their reputation, sales, revenue and customer base directly depend on this. Determining this data can be somewhat troublesome and will often involve the subjective side of the matter, but the best way to estimate it is by understanding and examining your territory carefully. Taking into account your own territory and geographical features, a reasonable estimate can be calculated. Once you have the estimate, use it to calculate the number of customers needed for each separate territory to prosper and, taking into consideration any geographical differences, set the boundaries of each territory.
Geographical data: One is free to divide his franchise territories as he likes, but there are some generally accepted practices that come really handy when setting the territory boundaries. Zip codes, census tracts, user-described areas (rivers, mountains, major roads, etc.), state boundaries and country boundaries are all good examples of these practices. Using a combination of these boundaries (for example, Zip codes plus state boundaries) will save you a lot of trouble both in terms of communicating the divisions to franchisees and making sure there will be no overlaps, which is a common problem when the territories are defined with the help of just one of the above mentioned boundaries.

Use only fresh data

The three data sources mentioned above change a lot over time and there are tons of reasons for that: people leave and arrive to new homes, new businesses or competitors appear, customers change, and more. It’s important to update your data at least once a year (ideally, you want to do it quarterly, but that can be costly) to always work with the latest data regarding your franchise territory.

It’s important not to view this advice as “optional.” Sure, it costs a fair amount of money to update your data, but the money you spend on acquiring the latest data directly translates into profit or loss of it, in case you lack the info.

Use geographical boundaries

This one is harder to pull off than the rest, but it’s still doable if you put some effort into it. Using geographical boundaries that change frequently leave you with a lot of unnecessary work that you need to do every time something actually changes.

For example, the most commonly used division methods are ZIP codes. They are unique to each state, reliable, easy to identify and everybody knows about them. The problem with ZIP codes though is that they are regulated by the U.S. Postal Service and for some reason they change every month. That’s not the most convenient way of dividing your territory and it will create a lot of room for potential conflict such as franchisee territory wars.

To avoid these kind of situations, it’s best to use a combination of division means or use census tracts. Census tracts don’t change often (maybe once every 10 years, which is acceptable) and provide the same level of comfort in terms of usage as ZIP codes.

Leverage modern technology and tactics

Technology makes a huge part of a successful franchise business. For the past decade, territory mapping software seemed to be the “go-to” product whenever franchisors needed help with data visualization — heatmaps, calculations and effective territory management — but that’s just a fraction of what technology has to offer today.

Customer behavior changes fast and aggressively, and keeping constant track of those changes can be challenging, even for the most experienced franchisors. The problem isn’t even the lack of data anymore, it’s about understanding what the data points are telling you. For example, imagine your territory is divided into 10 pieces and all 10 are operating seemingly well, but two of your franchisees generate $10,000 more monthly profit than the rest. Here’s what you can do:

Get ready to run some correlations. Use any tech/software you like, but even a simple Excel sheet will do just fine.
Bunch together a combination of various data pieces, which are available for all 10 stores, and pour them into the Excel sheet.
The data can (and should) contain any relevant information including parking data, lighting data, signage, customer demographics, psychographics, amplifiers (other businesses in the vicinity that can have a positive impact on your coffee shops, e.g. downtown area businesses, by driving potential customers to your franchise), suppressors (other businesses in the vicinity that can have a negative effect on your coffee shops, e.g. malls, by driving potential customers away from your franchise) and anything else that pops into your mind.
After running the analysis, certain correlations will become visible. For example, you may find that 10 to 15 empty parking spaces during peak hours have a positive correlation with the two franchises that generate $10,000 more sales, or the presence of amplifiers directly correlates to increased sales, or the absence of suppressors for the two most profitable franchises (and the presence of those for the other eight) correlate to increased and decreased sales numbers correspondingly.

The opportunities for finding correlations are endless. The more you dig through the Excel sheet, the more insights you can uncover. Use that information wisely to diminish the negatives and focus on the positives for maximum impact.

The beautiful thing about this is that no information is useless, and the more you have, the better. Keep in mind that competitor data, geographical data and demographics are just as important as consumer and psychographic data.

By putting together more data, the more correlations you will uncover, up to a point when you may be able to predict outcomes of specific events (like how effective it will be to add a big, underground parking lot to a franchise you are about to open in a new area), based on the insights you found earlier.

Suddenly, the whole thing isn’t just about territories anymore. It’s about your business as whole, on a much higher level. If you want to maximize the profitability of your territories and locations, you need to be able to decipher the hidden messages inside the data, and extract actionable insights. This is how to truly understand the effectiveness of your strategy and management, and maximize revenue further and further.

Mike Mack is CEO and Co-Founder of FRACT.