The marketplace is full of competition. Though franchisors can provide vital support to franchisees to face both direct and indirect competitors, they must also provide the geographic boundaries to protect franchisees from the other franchise locations.

Defining franchise territories is essential for reducing competition among franchisees, increasing investment value for each franchisee, and maximizing both franchisee and franchisor profitability. FranSource can assist you in determining the criteria for establishing franchise territories in a way that best suits your business model.

Provide Franchisees a Strong Foundation for Success

Franchisors and franchisees benefit from each other's success. Given this special relationship, it’s very important to develop the systems, assets, and resources that will provide a strong foundation for potential franchisees. A major factor in franchise development is the creation of franchise territories, which, when evaluated and carefully established, can provide unique benefits to your franchisees.

To start, defined franchise territories protect the investment made by franchisors and franchisees. Every location requires substantial capital to launch and maintain the business. Leaving territories undefined runs the risk of franchise locations opening in close proximity. In these scenarios, your franchise locations are not only facing off against the typical competition, but against their own brand.

Depending on your business model, without territory boundaries, your franchisees may compete for sales within the same market. Not only may this situation distort performance monitoring between locations, but it may also result in unnecessary conflict between franchisees as they attempt to out-compete one another.

Defined franchise territories offer your franchisees the stability for strategic growth. When done with intention, the territory development process should create regions or zones meant to maximize profitability. Likewise, the defined area gives franchisees tangible room to spread brand awareness as well as focus efforts in logistics, customer services, and promotions. Franchisees can then achieve operational efficiency, positioning these locations for scalable growth. This being said, there are cases when it can make sense to not provide franchisees a defined territory. We discuss this in more detail below.

Determining the Best Territory Model

Establishing franchise territories involves more than looking at a map and drawing arbitrary boundaries, or picking zip codes to define the territory. It takes thoughtful consideration regarding market demographics, competitor presence, as well as how a franchise model will operate in these areas.

There are numerous ways to establish franchise territories, and choosing between these different models will affect the ways your franchisees harness the full benefits of their home turf. Limited protected territories and exclusive territories are the most common types of franchise territories. In both cases, neither the franchisor or other franchisees are permitted to open a location within another franchisee’s territory. However, with limited protected territories, the franchisor reserves the right to conduct certain activities within the franchisee’s territory. Examples include:

• The right to sell or offer to sell similar products authorized for the franchise business using the franchisor’s trademarks or copyrights through dissimilar channels of distribution including the internet or direct marketing within or outside the limited protected territory.
• The right to operate, or grant other individuals the right to operate, franchises at “non-traditional locations,” such as airports, amusement parks, and colleges.
• The right to sell and distribute products or license others to sell and distribute products, within or outside the limited protected territory, through wholesales, grocery or convenience stores, or other similar retail stores.

Under the exclusive territory model, the franchisor does not reserve any of these rights. Some of the most common franchises that offer exclusive territories include Anytime Fitness, The UPS Store, and SERVPRO.

Even with these protections, some franchisors are wary of the limitations of offering a limited protected or exclusive territory. Though these territory models help franchisees avoid direct competition with other franchisees, these models can limit the franchisor’s and franchisee’s growth in certain cases.

For example, if the products and/or services can be sold by franchisees throughout the United States and does not require direct interaction with customers/clients at a brick-and-mortar location, it can be beneficial to the franchisor and franchisees to permit franchisees to market and sell anywhere in the United States. Even with the potential of inter-brand competition, non-exclusive territories can reward franchisees who are aggressive in marketing their products or services to potential customers. As a result, these franchisees can grow and expand without limitations, thereby expanding the brand’s presence. For this reason, franchisors that desire to provide franchisees more flexibility while encouraging healthy competition among their franchisees will often opt for non-exclusive territories.

In the case of brick-and-mortar franchises, some franchisors also opt for non-exclusive territories and permit franchisees to open and operate franchise locations in close proximity to other franchisees. The only territory protection franchisees receive pertains to the specific location of their franchise business. Of course, most franchisors are mindful not to oversaturate a market to the detriment of their franchisees. Common examples of franchises that have non-exclusive territories include Dunkin’, Subway, and Massage Envy.

Draw Boundaries with an Experienced Franchise Development Company

Once the best territory model is determined, it’s time to draw the boundary lines. As your dedicated franchise development consultant, FranSource can assist you in determining the best method for defining bustling, profitable territories for franchisees.

We utilize a range of tools, including regional maps, population data, demographic maps, and market analyses to help define territory boundaries that will create advantageous opportunities for both the franchisor and its franchisees. Boundaries typically abide by specific criteria such as zip codes, city, or county lines. However, depending on the territory format, some franchises opt to use a radius-based territory model. In these instances, franchisees may, for example, be free to market and sell to customers within a five-mile radius from their location. In these cases, a map that clearly defines the territory boundaries is often used.

Franchise territories are the bustling ecosystem that spurs the growth of your franchise locations. Setting them up for success requires an intentional approach with keen attention to details like location demographics, the functionality of your model, and the needs of franchisees. With a partner like FranSource, you can rest assured each of these components will be addressed throughout the development of your franchise territories as well as the business as a whole.

Franchise territories are one of the many ways franchisors demonstrate their support to franchisees. With an intentional approach, FranSource can help ensure your franchisees experience exponential growth and success. Contact us today to explore the ways you can develop and establish your territory criteria and model.