Key Aspects of Owning a Franchise Territory

One of the important factors to look for when you purchase a franchise is your franchise territory. It comes in various styles, shapes, and sizes.

Make sure to understand the definition of territory from your particular franchisor before making the purchase, since it is one of the important criteria of franchise success.

Types of Franchise Territory

You can find two types - exclusive and non-exclusive territories.

Exclusive Territories

When the franchise agreement says as exclusive territory then it is clear that thefranchisor will not set up another franchise within that particular area. Mostly, the agreement will come with a map for territory clarification.

Having an exclusive territory doesn’t mean you have less competition. We agree that there wouldn’t be competition within your franchise system in that particular territory but always expect competition from other franchises.

Non-exclusive Territories

When the franchise agreement says a non-exclusive territory then franchisor has the right to sell franchises inside the territory to others as well. These franchises are however restricted from delivering products and services to customers outside the common territory.

Regardless of your franchise territory being exclusive or non-exclusive, you need to discuss the scenario with existing franchises.  

Territories Change

Sometimes, even if you have an exclusive territory, the franchisor may reserve the authority to change it, depending on the unfolding situation. It may include developments like drastic changes in demographics, change in demand for the products and services, etc.

There are times when a franchisee fails to perform well even with immense support, and training. Under such circumstances, franchisors may reserve the right to open another franchisee within the particular territory.

Issues with Territories

There are instances where a franchisee with an exclusive territory may get business from outside the particular area. Sometimes, a customer may shift location and would still prefer products and services from the old franchisee. Most of the franchisors are aware of these possibilities and have solutions for it.

Within the franchise agreement, these issues and solutions must be clearly mentioned to avoid disputes in the future.

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