Evaluating Potential Earnings: What Should You Expect Regarding Your Exclusive Franchise Territory?

When considering a franchise, a key aspect a prospective franchisee must consider — crucial to reaching customers and seeing a return on investment — is the size of the territory. 

As stated by Franchise Law, a franchise territory is an area within which a franchisee is authorized to establish and operate a franchised business, and this territory, depending on population, the demand and recognition of the brand, and the property value of the area, can affect the earnings of the business owner. 

With the U.S. national average income of a franchise owner ranging from $50,000 to $200,000-plus per year, there is quite a range — and several factors at play — determining how much a franchisee makes. On Atlanta Franchise Today, Leslie Kuban, expert franchise consultant and owner of FranNet Atlanta, explains that territory is one of these key factors. 

“...The territory can be an asset in and of itself, especially if you own the franchise in prime areas with strong demographics that are growing,” said Kuban. “And at some point, you’re going to be ready to exit your business. You’re going to be ready to sell your business, and ownership of prime territory can be a very positive factor when it comes to the valuation of your business for sale.”

For a hopeful franchisee to best understand their potential earnings as it relates to territory, they should familiarize themselves with a brand’s territory mapping and study trends in each area. As a franchise system grows, territory definitions may change and can be defined in several ways. For example, there are simple metrics such as mileage radius rings, ZIP codes, population size, road boundaries, or some combination of metrics.

In his video, “The Franchise Territory You Want Is Sold Out. Now What?” Joel Libava explains that obtaining the desired franchise territory is not always as easy as one might hope, but there are steps to take if that person is committed to joining the brand. For example, if the desired territory is taken, the hopeful franchisee may ask the corporate team if there’s available territory nearby or if there’s someone in the vicinity who may be interested in selling their territory. Lastly, there might be the possibility of creating a new territory.  

Kuban further explains franchise territory like the real estate market and that franchise locations in good neighborhoods will command a higher value because of the geographical surroundings. 

Another aspect to consider in regard to territory is the trajectory for growth, and earnings, in the future. 

“Most franchise brands would much prefer to have franchisees who have an appetite to grow,” said Kuban. “[Brands often] prefer to have one franchisee who owns three territories versus three franchisees who each individually own one. And many times, they’re discounting the fees on that second, third, and fourth territory as an incentive for people to want to grow. And the big benefit is this secures your ability as a franchise owner to grow over a period of time.”