Franchise units are built upon the franchise territory, determining where an owner's customers, revenues and future growth will come from. Potential franchisees could see low sales if a territory is too small or be required to invest in more resources if it is in a larger area. Some franchise systems will even set quotas or performance standards based upon the size of the territory.
Prospective franchisees often believe that the bigger the franchise territory they are contractually guaranteed, the more insulated they will be from fellow franchishees - that is competition - and the greater potential for growth they will have, FranchiseKnowHow.com explains.
However, there are other factors that affect the successfulness of a franchise territory. First, when franchisees meet with their attorneys, they must consider how the territory is defined. Some systems demarcate areas based on population size, while others do so by using specific demographics. Regardless of the factors, franchise systems should have a consistent method for allocating territory. If not, this could be a sign that in other areas of the operation the system may be unorganized and unpredictable.
Many franchisees hope to be awarded an exclusive territory agreement, which creates a protected territory for unit owners that prevents other franchisees within their system from opening up an additional unit in the same territory, according to the Web site. This benefits franchisees by facilitating revenue and motivating market development. However, individuals should be careful; this may not prevent a franchisor from allowing another unit to open on the territory's border and potentially draw away customers.
Franchisees may be granted an exclusive territory, but it may also be accompanied by certain qualifications. Restricted territories prohibit unit owners from marketing outside their territory to protect other franchisees. If a territory is "open" - or lacking a franchisee - franchisors may allow unit owners to market in this area until it becomes "closed."
Sometimes territory can become a contentious issue among franchisors and franchisees. However, unit owners should remember that the system wants to increase revenues, which means they have a vested interest in making sure that all of its units are performing at their highest level.
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