A study by The Institute for Operations Research and the Management Sciences showed that 91% of successful franchises have one common thing written in their franchise agreement: exclusive territory. That is enough to tell why you should know about this part of your franchise agreement thoroughly before you actually buy a franchise. Almost all franchise concepts will provide you a territory; it can be based either on geographical boundaries or demography of the area.

For example, one franchisor may say that the consolidated metropolitan area is the territory for you while others can state that an area with certain number of population is your territory. The territory can be as big as a city or as small as a shopping mall where it’s located. But no matter how big or small the territory is; it’s of no use if the territory is not exclusive.

When the area is exclusive, it ensures that the franchisor won’t let someone else who is starting a franchise under it open a franchise within that territory. It will save you from the very dangerous “cannibalism”, which happens when two units of the same franchisor compete for business. If that takes place, chances of your success as a franchisee get comparatively reduced. That is why people seeking to buy a franchise stay clear of franchise opportunities that don’t promise an exclusive territory. Hence, if your franchisor doesn’t give you a fixed territory in writing, seek out the litigation history section of the FDD and try to find out whether the existing franchisees have started litigation cases against the franchisor regarding this point. The litigation cases against even the top franchisors are mostly on this contentious issue. But, there’s a reason why the franchisors hesitate in giving exclusive territory rights. They fear that by giving franchisees exclusive territory rights, they are inviting their loss, as the franchisees may under utilize the area.

It may sound strange, but there are many businesses which can thrive well even without exclusive territory. Like in case of several maid service and cleaning service franchises,  businesses are often carried out via the main hotline of the parent company. The business will be referred to the franchisees from whose territory the call originates. If that franchisee is unavailable, then the franchisor moves on to the next franchisee who can take up the job. Many times, people get attached to the person who performs their cleaning and handyman services. If they shift, they still want their favorite handyman or cleaner even in their new location. In such cases, the companies allow the franchisee to send his team to someone else’s territory. Then there are also businesses that profit well from references and they can come from anywhere. In such cases, exclusive territory may not be that good an idea.

If you want to know more on this topic, contact brandEXPANSION.
Written on July 15th, 2009 by Joseph in Franchise Industry.