When you start exploring franchising opportunities, you’ll quickly learn that territory will be an important part of your research, decision, and ultimate success.
What is Franchise Territory?
Franchise territory is the geographic area a franchisor authorizes a franchisee to establish and operate a franchise business. It offers protection and exclusivity for a market area you own and have control to develop as a franchisee.
How are Franchise Territories Constructed?
In service businesses, such as home cleaning or pest control, the franchise territories may be defined by a grouping of zip codes or counties depending on how large of an area you wish to develop. Conversely, in franchise models that require brick-and-mortar locations, such as hair removal spas or fitness centers, the territories are often based on a radius around the location’s address.
Territory definitions for business-to-business (B2B) brands often differ from consumer-focused franchise models. Franchisees have more freedom regarding where and how they market and deliver their products or services because it makes more sense for the end customer. A great example is a commercial sign production franchise. A signage franchisee may have a single commercial customer who needs signage produced for their locations nationwide. It would be far less convenient for that customer to work with multiple franchisees when they can easily have their needs met by one. This enables the franchisee to keep that B2B customer for the long term.
Territory definition and construction are a delicate balancing act for any franchise brand. They must be mindful not to oversaturate or underdevelop their brand with too many or too few locations in a market. The right balance of the appropriate number of franchise owners in a market, who are well-suited to the industry and business model is a substantial factor in fostering the opportunity for everyone – the franchisor and the franchisees – to enjoy optimal success. The rationale behind a franchisor’s territory configuration decisions is important for a prospective franchisee to ask questions about and understand.
The Pros and Cons of Franchise Territory
A substantial benefit is that franchise territory can be an asset in and of itself, especially if you own the franchise in prime areas with strong demographics and a growing population of customer targets. Ownership of prime franchise territory can boost the value of your business.
Another benefit is that it can protect a franchisee’s future growth. By committing to developing multiple territories, you don’t have to be concerned about other franchisees buying the territory around yours and blocking your future expansion. Many franchise brands prefer franchisees who aspire to grow. They prefer one franchisee who owns three territories instead of three franchisees who each individually own one. Often the franchise fees are discounted for the second, third, etc., territories for a multi-territory agreement.
Conversely, territory can limit a franchisee’s growth goals. Just because you’re not seeing a brand open in a particular market doesn’t mean it’s available for development. An existing franchisee may have committed to that area as part of their growth plan, and they will develop it at some point in the future.
Navigating Franchise Territory to Your Advantage
Determine the availability of the brand in your desired area early in your research so you won’t waste time and effort investigating a brand that was never available in the first place. The best way to do this is to contact the brand you are interested in and ask the franchise representative about territory availability. Or, if you are working with a franchise consultant, let her or him know your geographic parameters so they can include them in their search efforts on your behalf.
To own a major franchise brand, you often must be flexible about your outlet’s geographic location. If the franchise is already a household name, many prime areas have likely already been claimed. You may have to relocate or commute to where the open territory is located.
If future growth with the brand is important to you, discuss a multi-unit franchise agreement with the franchisor up front. The franchisor is likely in talks with other qualified candidates who may be eyeing the same territories as you, especially if they are prime markets. You don’t want to lose growth opportunities to these other candidates.
