Think about a famous franchise in your town. McDonald’s, maybe. Count how many McDonald’s you have on the same block. Just one? There’s a reason for that: Franchisees pay a hefty franchise fee to use the franchise’s brand name, product, and trademark.

What is Franchise Exclusivity?

Because franchisees pay a franchise fee and ongoing royalties, the franchisor wants to ensure the franchisee makes enough money. As a result, most franchises assign each franchisee a territory in which the franchisee has exclusivity.

Let’s use McDonald’s as an example again. Maybe you’re planning to become a McDonald’s franchisee. Exclusivity simply means that no other McDonald’s can be built within a certain radius of your restaurant. That means another franchisee cannot just move in down the block and take customers from your restaurant.

Franchise

How is a Franchise Territory decided?

Mapping territory to be divided among franchisees can be tricky and some franchises just don’t get it right. However, there are several factors that go into mapping territories, including the success of the franchise. A globally successful franchise like McDonald’s will typically offer much smaller territories because they are so popular and so well-known that getting customers into the door is pretty easy. So, you may find a McDonald’s in relative close proximity anywhere you go in the world.

However, Bob’s Burger Pagoda may offer a larger territory because it isn’t as well-known, which means a franchisee may need a larger territory to bring in a sufficient amount of business.

Many franchises also use mapping programs that allow them to analyze the best way to divide a city or even a region, taking into consideration such factors as population and distance between franchises.

What questions should I ask about a Franchise?

Before settling on a franchise, be sure to answer the following questions:

·         Are territories exclusive or non-exclusive? (Non-exclusive means another franchisee can move into your area.)
·         How does the franchisor map the franchisees’ territories?
·         Is the population in your potential territory large enough to run a viable business?
·         Will you be permitted to choose your own territory?
·         How close will the nearest franchisee be situated?
·         Will you be permitted to open another location in the future?

 

This is just a starting point. Write down as many questions as you can think and research the issue of franchise territories before signing a contract to become a franchisee.