When you start exploring franchising opportunities, you’re quickly going to learn that territory is going to be an important part of your research and your decision.
What is Franchise Territory?
Franchise territory is the area a franchisor authorizes a franchisee to establish and operate a franchise business. It offers protection and exclusivity for a geographic area you own and have control to develop as a franchisee.
How are Franchise Territories Constructed?
In service businesses, such as a home cleaning franchise, the franchise territories may be defined by a set of zip codes, county, or multiple counties depending on how large of an area you wish to develop. Conversely in retail businesses where you have a physical address or a brick-and-mortar location, such as a hair salon or fitness center franchise, the territories are often based on a radius around the location.
For business-to-business (B2B) brands, these restrictions may not apply. Franchisees have more freedom as to 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 that needs signage produced for their locations all around the country. It would be far less convenient for that customer to have to work with a multitude of franchisees when they can easily have their needs met by one. This enables the franchisee to keep that B2B customer for the long term.
The Pros and Cons of Franchise Territory
One of the biggest benefits is that a franchise territory can be an asset in and of itself, especially if you own the franchise in prime areas with strong demographics that are growing. 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 you from future expansion.
Many franchise brands prefer franchisees who aspire to grow. They prefer a franchisee who owns three territories instead of three franchisees who each individually own one. Often discounts are given on the franchise fees for the second, third, etc. territories when a multi-territory agreement is chosen.
“Ownership of prime franchise territory can boost the value of your business.”
On the flip side, a territory can also limit the owner’s growth and future path. Just because you’re not seeing a brand open in a territory doesn’t mean it’s available. An existing franchisee may have committed to that area as part of their growth plan, and they are going to develop it at some point in the future.
Tips on Navigating Franchise Territory to Your Advantage
- Determine the availability of the brand in your desired area first, 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 directly. Then ask the franchise representative about territory availability in your area of interest. Or if you are working with a franchise consultant, let her or him know your geographic parameters so they can include those criteria in their search efforts.
- If you want a prime brand, be flexible on where your location will end up being. If the franchise is already a household name, many prime areas have likely already been awarded. You may have to relocate or commute to where the territory is.
- If you want to grow, discuss a multi-unit franchise agreement with the franchisor right away. The reality is the franchisor is in talks with other qualified candidates who may be eyeing the same territories as you. You don’t want to lose growth opportunities to these other candidates.
Discover more insights about franchise territory in this episode of my original weekly TV series, ATLANTA FRANCHISE TODAY.
Do you want to discuss starting a franchise in a territory you’re interested in? Schedule an appointment with me at https://calendly.com/leslie_kuban.
Leslie is a nationally recognized franchise industry expert, CFE (Certified Franchise Executive), author, educator, and Market President of FranNet, based in Atlanta. Her consultant team has helped over 500 individuals and families strategically choose a business opportunity to start or acquire through a thorough alignment and assessment process. Leslie hosts her original TV series, ATLANTA FRANCHISE TODAY, airing weekly on Atlanta Small Business Network. Prior to FranNet, Leslie’s career and family history consists of franchised and non-franchised small businesses in pack-and-ship logistics, real estate, sign manufacturing, and one-hour photofinishing.