Your research into potential franchises should include a close examination of the territory you’ll be given and also how the territory is defined. Whether you decide to open a storefront or offer a franchised service, you will need to attract customers from the surrounding community to be successful.
Franchisors aim to maximise profits in every market they operate in. They do this by providing a variety of territorial safeguards, such as:
Per the terms of your franchise agreement, your business will be the sole distributor of the franchisor’s products or services in the specified territory. Establishing an exclusive territory balances the need for a sizable market with the desire for manageability. Because they may feel overwhelmed, franchisees in systems without clearly defined territories face a serious threat to their businesses. Many franchise territories are determined by the number of zip codes or miles from the franchise’s physical location.
Franchisees with a protected territory agreement work within a specified geographic area. However, customers in that area can still buy the franchisor’s products or services from other channels, such as the company’s website. If you want to make sure that your territory isn’t infringed without cause, it’s a good idea to review the franchise agreement and see if there are any specifics in there about exceptions to the protections you’re guaranteed. Although this arrangement may not seem ideal, keep in mind that a franchisor has good reason to believe your location will be successful even if it differs from the norm.
Unfortunately, not all franchise systems provide their franchisees with territorial protection. Regarding traditional stores, it can be mutually beneficial to locate close to a similar establishment. More outlets, for instance, means more opportunities to build a recognisable brand. You must inquire about potential outcomes if you find yourself in a similar situation.
What do you do if your business suffers a severe revenue drop after a rival establishment opens nearby? Will you have priority if the franchisor decides to sell additional territories? A franchisor could choose to open stores that directly compete with others it licences to maximise profits.
Although this is not a guarantee of safety, you might well be able to expand into nearby territories that have not yet been sold as franchises. It would help if you discussed the possibility of this in advance. It might happen that consumers in that area are given to some new franchise by your franchisor.
However, if you were the one who brought them in as a customer in the first place, you may be able to keep them. Understanding the franchisor’s guidelines for selling products and services is essential. Nobody enjoys putting in a lot of effort only to see a client go to a competitor in the franchise system.
Franchise agreements often outline “marketing territories,” or the areas in which franchisees are permitted to actively market their products/services through newspaper ads, door-to-door canvassing, and other creative approaches. If a publication, for instance, covers both your territory and a neighbouring one, the boundaries may become unclear and you need to keep these aspects in view.
Territorial provisions are subject to several possible variations. If you’re unable to meet targets or render profits within your territory, the franchisor could assign it to another franchisee. You might be able to accept recommendations from customers in a different franchisee’s territory. Everything is subject to the terms of the contract.
Determine how territories are established and whether or not they are respected regardless of which franchisor you choose. Involve the current operators by inquiring as to whether or not they are pleased with the setup. One of the many things to consider when choosing a franchise is the franchisor’s commitment to helping you succeed in your chosen market.
If you want more franchising information, contact the experts at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact form, and one of our experts will contact you as soon as possible to answer all your questions about franchising.
