What is the Purpose of Franchise Territories?

When franchising your business one of the key elements in the franchise development process is determining if you will be awarding a protected territory to franchisees (learn more about our strategy when taking you through the franchise process). So let’s take just a few minutes to explore franchise territories. Awarding a franchise territory adds a huge value for your franchisees and serves two purposes:

  1. Ensures the franchisee that you will not award another franchise within this defined area;
  2. Ensures the franchisee that you will not open a company-owned location within this defined area; and
  3. Gives the franchisee peace of mind that another one of your concepts (whether franchise or company-owned unit) will not directly advertise for customers and/or clients within this defined area.

This defined area should be large enough to incorporate the “good” along with the “bad” areas. It is defined as one large cluster (whether by demographics, radius or zip codes). This does not mean that a franchisee cannot service a customer and/or client outside this defined area. This is especially important for service oriented business models. Franchisees can go wherever their sphere of influence takes them; however they just cannot directly market outside their defined area (check out our article on the topic of franchisees and marketing). Franchisees can service customers and/or clients outside their defined area from whom they receive an unsolicited request. The defined area awarded (the franchise territory) should be large enough to provide the franchisee with sufficient business potential.

It is specified in the Franchise Disclosure Documents (learn about the Franchise Disclosure Documents) that it is up to the franchise applicant to submit to you the location of their business for your approval. When discussing that location if it is determined that their location and surrounding area is not sufficient due to neighborhood, demographics, population, etc. then you can simply not approve that location and the franchisee must find another (read more about your role in helping franchisees pick a location). The location of the franchise business is an important factor directly linking to the territory awarded.

To learn more about franchise territories call us directly at 1-877-615-5177 or simply send us your contact information. We will gladly answer any questions about franchise territories and franchising in general.