How Do Franchises Divide Territories?

Territories are imperative to the success of any good franchise which makes dividing them such an important component of assigning them to the franchisees who buy into the company. Think about which franchise brands come to mind, you can be sure that nearly every one of them relies on territorial division to operate at peak performance.

But how do the franchising companies go about dividing up territories and what makes one more appealing than another for both the franchisor and franchisee at the same time. The key lies in a number of various methodologies by which each of the parties determines how territories are assigned for the shared benefit of the company and the franchise owner.

Here are some of the ways that franchises make territories available to their franchisees and what makes one a better option than another when it comes to securing one’s rights to operate a branch establishment of the company.

Exclusive vs. Non-Exclusive

As you put some thought into buying a franchise, consider whether the company practices exclusivity with the assignment of their territories. This can be important for the franchisee as it helps to protect their investment by assigning a territory to that individual alone and reducing any competition from other franchisees who may open branches in that particular region.

Exclusivity gives you total control over that particular area so you have a better chance of succeeding in that territory. When you buy in, your agreement will map out the perimeter boundaries that are exclusively yours which are typically defined by the zip code, mileage, jurisdiction, and other various factors that delineate the borders of that territory.

But not all franchises offer exclusive territories and those that don’t can end up placing a greater amount of pressure on franchisees who are trying to grow their business. If there are other franchises so close by within the territory, it can make it tougher to get ahead.

Creating Boundaries

When the franchising company is defining the boundaries for each territory they will typically rely on a variety of data to help distinguish borders. Distance, zip codes, and population are all the most common ways by which to divide territories among franchisees.

In some instances, the company will consider the location of the establishment and then calculate the area surrounding to determine that franchisee’s territory. This circumference is also considered along with a specific estimated customer base within that area.

Zip codes are also a reliable method for defining and dividing territories for those interested in buying a franchise. The choice of zip code as a way for division considers total population by area of whom your location will serve. However, this does present some future risk as the population could increase within the defined area and this can make it tougher for just one franchise to be the one and only purveyor of your franchise’s product or service.

Since this eventuality might be looming on the horizon in either the short or the long term, the franchisor has likely come up with a contingency plan in order to address the issue. But it’s critical that you, as the franchisee, knows how this can (and more importantly will) affect your business down the line. Many franchisors will come up with various different plans to deal with this consumer growth and you should know and understand how that plan will work and when they anticipate it kicking in before you enter into a formal franchisee contract.

Though typically this is fully explained as part of said contract, you should discuss any concerns ahead of time. Just because it’s written into the agreement doesn’t mean you have to agree to it.

Master Franchise Strategy

There are simpler methods that some companies prefer which streamline the process for division through a series of granted assignments and accompanying conditions that must be met, otherwise the franchisee risks losing the contract. These conditions are typically related to sales quotas that the franchisee must meet or exceed or take various actions in support of the company’s success such as certain marketing efforts or product or service quality standards that must be maintained.

If these conditions are broken, the franchisor has the right to rescind the territories assigned and even cancel the contract altogether.

Look over the Franchise Contract

As mentioned earlier, the franchise contract contains all of the information necessary to outline the details of the agreement made between the two pertinent parties involved. Territories should be clearly delineated with all stipulations and expectations written in concise and thorough language. This is usually where an attorney can step in and explain anything that seems unclear and advocate on your behalf for a territorial agreement that is beneficial to your future success as a franchise owner.