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Territory
It
sounds almost animalistic: territory, exclusivity, and intrusion.
But these are essential aspects of your franchise. Without the
notion of territory, any competitor could open an identical
franchise next door to yours!
With
rare exceptions, having two franchise locations close together
doesn’t benefit anyone. It doesn’t benefit the franchisees,
both of whom will cost one another business, and it doesn’t
benefit the franchisor, as neither location will make as much
money as they might in a better location.
Franchisors
assign territory with an eye to market research. Because it’s in
their best interests to have you succeed, you can usually rest
assured that they’ve done their homework, and the territory
assigned to you will be sufficient to provide the business you
need. A very popular franchise might have another location close
by, but in that case, the location is probably overrun and in
desperate need of someone to take the pressure off. More commonly,
you will be the only location in a given area.
Ideally,
the franchise should meet two requirements:
1.
It should provide sufficient area for you to turn a profit, and
2.
It should be close enough to your home to be convenient.
There’s
no sense accepting a territory that’ll take hours of driving to
reach. You won’t be able to cover it appropriately.
Types
of Territory
You
will find three types of territories offered by various
franchisors.
1.
Exclusive Territory
When
you hold an exclusive territory, it means that you are the only
franchise permitted to operate in a given area.
Pros:
-You are guaranteed a certain customer base
-You
are protected from competition
-The
franchisor has a vested interest in your success in that area
Cons:
-Because franchisors don’t want to limit themselves,
exclusive
territories may be quite small
-Exclusive
territories may prevent you from advertising outside your
area.
For
example, few franchises with exclusive territories allow
franchisees to maintain websites. Similarly, if you wanted to
advertise in a newspaper with widespread circulation, you may
f ind yourself in violation of your franchise agreement.
2.
Non Exclusive Territory
When
you hold a non-exclusive territory, other franchisees may operate
in your area, and you may operate in theirs. This is particularly
common with service-based franchises. Often, a central office will
contact a franchisee in the appropriate territory and offer
“first dibs” on a project; if they refuse, the project is
offered to other franchisees in other territories.
Pros:
-You have more freedom in marketing and advertising.
-You
have a larger customer base to choose from.
-You
can promote customer loyalty even if they relocate to
another
area.
Cons:
-You face increased competition.
-You
may find other franchisees expanding into your territory and/or
intruding
on your customer base.
3.
Site Based Territory
Site
based territories are rare. In these situations, territory
regulations apply only to the specific location the franchisee
operates.
Words
of Caution
Before
signing the franchise agreement, make sure you’re very familiar
with the territory regulations and expectations. Territory is an
important part of the franchise. It may not seem so when you’re
bogged down with a dozen other terms in the franchising process,
but if you don’t take the time to analyze your territory now,
you may regret it later.
Watch
for ambiguous phrasing, allowances for expansion and mergers, and
market research. You hope to trust your franchisor, but it’s
only common sense that you double-check these things yourself.
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