Why is Territory Important in Franchising

Franchise Territory and Franchise Location are two crucial factors that determine the growth potential of a franchise in the long term. Make sure to choose the right franchise opportunity that provides large and protected territory options.

Definition of a Franchise Territory

Franchise Territory can be defined based on the population/zip codes, demographics, marketing area, online sales, location, etc. If you are receiving a small territory then you may need to check the financial viability of your franchise.

Most Common Territories

01. Exclusive Territories

If your franchisee agreement has an exclusive territory clause, then it means that a specific territory is allotted to you, and the franchisor will not open another franchise inside it.

This is advantageous, since you can establish your business without the threat of others within the same franchise system intruding into your area.

02. Non-exclusive Territories

If your franchisee agreement has a non-exclusive territory clause then it allows other franchisees from the same franchise system to operate within the same territory.

Mostly, this system restricts the sales outside the allotted territory. The advantage is that the franchisor increases the number of territories but at the appropriate time.

Importance of a Good Franchise Territory

Opportunity knocks but once, goes the adage - so choose carefully. It is important to select a territory that has room for growth, and has the potential to help you in reaching your financial goals.

If possible, choose a territory with an existing customer-base, willing to buy from your franchisee.

How do you find a good franchise territory? The best way is to talk to other franchisees about the territory. You can ask them:

• If they are getting the expected Return on Investment (ROI).
• If they got their first choice of territory.
• If they are planning to buy another territory.
• If they can provide you tips on how to choose the best territory.

Changes to Franchise Territories

Even if a franchise agreement stipulates exclusive territories, there are chances of the franchisor changing the territory status to "non-exclusive" later. This can happen because of improvements in the technology used by the franchise system, greater demand for the franchise, or changes in prospect demographics within the territory.

A franchisor can also choose to take this step if the existing franchisee is under-performing and not meeting business goals.

For more insights into the importance of territory in franchising, Click Here.