How Much Territory Should I Buy?

When purchasing a franchise, knowing how, when and where to expand is crucial.

SPONSOREDUpdated 9:09AM • 09/30/15

For many small business and franchise owners, being an entrepreneur is a lifelong dream. And for most, opening their first business is just the start of cementing a secure financial future through multiple units.

When opening a franchise, new owners target markets where they have the best opportunity for success. For most franchisees, that means establishing a presence in an area where there is a demand for their product. However, for the best return on investment, franchisees shouldn’t limit themselves to one location—they should plan ahead. Considering potential expansion opportunities will result in multiple revenue streams that will yield increased revenue opportunities.

But how much territory should a franchisee purchase?

Katie Fagan, a FranNet franchising consultant who works with residents throughout California, is an expert in franchising and small business. She represents more than 100 national franchises in a wide range of industries. When she works with clients, Fagan discusses myriad options, including what brands to focus on, where to set up shop and the best approach for expansion.

She said a crucial component to franchising is making sure to make the right real-estate play.

“Locking up the best markets is key to success,” Fagan said. “Owning multiple units allows franchisees to increase cash flow and grow a business you already know how to run. To me, it’s a no-brainer.”

Fagan, who recently purchased a large share of FranNet units throughout California, understands the advantage of branching out. Purchasing a large portion of the market and growing your franchise into a much larger business clearly offers advantages.

Securing a large share of territory is typically a smart investment for franchisees, but recognizing when to expand can be tricky and it varies for everyone. Fagan says a 6-to-12 month timeline with existing brick and mortar franchises is a good model to follow.

“It needs to be the right time for each individual franchisee,” she said. “They should grow their business at the pace they are comfortable with, and they need to be sure that the infrastructure they have put in place can support their expansion.”

And much like the timeline for expansion, the amount of units to open is solely based on each franchisee and their goals.

“When I work with clients, we work backwards,” Fagan said. “They need to assess the income they need to replace, how many units they need to get to that point, and what they can realistically afford. If they are looking to build a larger empire, they may look at 10 units, but some people just want to replace their income, so fewer units will suffice.”

Fagan says having locations within a reasonable distance from each other creates flexibility and a seamless continuity for her employees.

“Having five units in contiguous markets allows me to float employees from location to location,” she said. “If I cannot be at a certain event or engagement, I know I have people I can call on to take my place. When working with clients, we talk about them keeping their business close to home so they can best know the ins-and-outs from the beginning. Once they have that concrete knowledge, expansion to other markets can follow.”

So while the franchising experience may vary from person to person depending on their end goals, the concept of establishing a strong presence in any specific market is essential.

How Much Territory Should I Buy?

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