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Taking the Mystery Out of Franchise Territories and Exclusivity Agreements

Franchise agreements typically set boundaries to protect franchisees from unfair competition within the system. In this article, Andrew Beach of Area 15 Ventures helps explain how it works.

By Chris IrbyCopy Editor
8:08AM 06/25/24

So, you’re thinking about diving into the pulse-pounding, thrill-a-minute world of franchising, but you keep hearing about these mysterious things called "franchise territories" and "exclusivity agreements." What exactly are they, and why should you care? 

1851 Franchise spoke with Andrew Beach, vice president of sales for Area 15 Ventures, to help break these concepts down into plain English.

Defining Franchise Territories: Your Exclusive Domain

First off, let’s tackle franchise territories. Think of them as your franchise's stomping grounds. It’s like marking your territory in the wild, except instead of trees, you’re claiming a specific geographic area where you’ll operate your business. This territory is usually defined by boundaries such as ZIP codes and neighborhoods — or even entire cities, depending on the franchise.

“Territory is a defined region that allows you market your franchise within or grow into a development schedule over a period of time,” Beach said. “Typically, territories are based on population counts or business counts, and they’re usually more defined in higher density areas.”

The Importance of Franchise Territories: Protecting Your Slice of the Pie

Why are franchise territories a big deal? Well, they’re all about protecting your slice of the pie. When you invest in a franchise, you want to ensure that you have a fair shot at attracting customers in your area without competition from fellow franchisees. Having a designated territory means you don’t have to worry about someone else encroaching on your turf and stealing your customers.

“It gives you an idea of the market that you own for advertising and that you can grow into, as you expand” said Beach. “It also helps protect that market from other investors who want to buy into the brand within that specific region.”

Unlocking Exclusivity Agreements: Your VIP Pass

But wait, there’s more! Along with franchise territories often come exclusivity agreements. These agreements are like the VIP passes of franchising. They grant you exclusive rights to operate within your designated territory, meaning the franchisor won’t sell or open another franchise location nearby that could potentially compete with yours.

“Typically, people want an exclusive region because they want to find the best locations and develop a market themselves,” Beach said. “They want to be able to decide the distance between locations and just make sure they have the first right for the top real estate that comes available within their market.”

Navigating Exclusivity Agreements: Terms and Expectations

Keep in mind that exclusivity agreements do come with some strings attached. In exchange for that exclusive territory, you’re most likely expected to meet certain performance targets or sales goals. After all, the franchisor wants to make sure you’re making the most of your protected territory and not just sitting back and coasting.

According to Beach, one condition commonly attached to an exclusivity agreement is the development schedule. “If we sell a certain market to you, we want you to commit to a certain amount of units to be opened in an agreed-upon amount of time,” he explained. “Overall, exclusivity gives you the right to pick and choose the top tier locations — you work on where you want to go first … And since you’re paying for the exclusivity, you’ll want to develop quicker — sooner, rather than later — to get a quicker return on your investment.”

Understanding the Fine Print: Variations and Considerations

It’s also worth noting that not all franchises offer exclusivity agreements, and the terms can vary widely from one franchise to another. 

“There are a couple of different models that franchisors use,” said Beach. “[Area 15] uses the regional developer model, which typically gives franchisees anywhere from half a million to a million population, with a five or ten unit store count in that marketplace. Some franchisors will let you negotiate for a specific region if you buy a multi-unit package up front, and some franchisors will give a protected market for a single unit — they’ll carve out in the map exactly where you can place and market your franchise.”

In other words, some franchisors may offer strict territorial protection, while others may have more flexible arrangements or none at all. That’s why it’s essential to do your homework and fully understand the terms of any franchise agreement before you sign on the dotted line.

Staking Your Claim in the Franchising Game

Franchise territories and exclusivity agreements are essential considerations for anyone looking to jump into the franchising game. They can provide you with the peace of mind and protection you need to build a successful business without constantly looking over your shoulder for competitors. Just remember to do your due diligence and negotiate terms that work for you — and then get ready to stake your claim in the world of franchising!

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