Benefits and challenges of implementing an area developer program: to fairly evaluate whether an area developer program makes sense for a franchisor requires consideration of both the benefits and challenges.

Author:Khalil, Carl
Position:MANAGEMENT & OPERATIONS
 
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Whether to implement an area developer program is a decision franchisors make at various times during their business planning. New franchisors may question the need to implement an area developer program from the start. However, established franchisors contemplating growth may wish to expand into an area developer program.

Franchisors in either of these situations must consider the advantages and challenges that an area developer program presents.

What is an Area Developer Program?

Most people in the franchise industry are familiar with the concept of a unit franchise, which refers to a single territory where a franchisee locates one or more outlets. In contrast, an area developer program refers to a much larger territory where an area developer concentrates on promoting and supporting the unit franchises within its borders.

Commonly, the area developer pays a higher initial franchise fee than a unit-franchise owner, but in return receives a portion of the fees generated by the franchisees in the territory, including initial franchise fees and royalties. The area developer's duties are to generate unit-franchise leads, assist in the franchise development process and offer certain types of support to the unit franchisees.

BENEFITS of an Area Developer Program

The primary benefits from an area developer program include an acceleration of income to the franchisor, faster growth and additional support.

* ACCELERATION OF INCOME

Perhaps the most appealing aspect of an area developer program is acceleration of income. By selling large territories for substantial initial fees, a franchisor has the ability to generate large amounts of capital. For many franchise systems, such capital can be vital for use in lead generation, hiring and the development of internal support systems. This benefit is especially timely given the existing tighter lending markets.

* FASTER GROWTH

Another primary benefit of the area developer program is to increase lead generation and franchise sales. Well-chosen area developers have local contacts and networking abilities that an out-of-state franchisor would not have. Therefore, the franchisor benefits by a local supplement to its internal franchise development efforts.

* ADDITIONAL SUPPORT

A problem every business faces is matching internal staffing to external demands without incurring excess payroll costs and overhead. An area developer program creates an additional layer of support, geographically closer to the...

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