When you, as a prospective franchisee, are looking at purchasing a franchise operation, you are buying various rights. These include the intellectual property behind the franchise system, the support of the franchisor on an ongoing basis to assist in a successful business and the right to sell the goods or related to that franchise. Just what may define a territory differs from franchise system to franchise system. Territories come in many shapes, sizes and styles. The two most popular types are:
Exclusive Territories
When a franchise is being sold with an exclusive territory this means that the franchise agreement will contain details of an exclusive area in which the franchisor will not set up another franchise to compete with the franchisee that holds that territory. These are typically defined by zip codes or counties and may have to meet minimum demographic requirements.
Most franchisors have a formula or algorithm to understand what is needed to make a successful territory. They use this data to ensure that franchisees have the same opportunity for a successful business, whether they live in a suburban or rural market.
The upside of an exclusive territory is that no other franchisee can market or do business within your area. You also have the added benefit of an exclusive market to offer if you sell your business someday.
Non-Exclusive Territories
Non-exclusive territories often define the area that franchisees are allowed to work within, but they allow the franchisor to sell franchises to other prospective franchisees within that territory also. These franchisors will also typically have a formula or algorithm to understand the demographics, and how many franchisees can fit into a market without stepping all over each other.
The majority of these types of franchises tend to be business-to-business franchises, as franchisees may market to specific industries more than just focusing on a specific area or zip code.
The upside of a non-exclusive territory is that you can build a very large business without territory restrictions. However, if you worry about competition and having a territory to sell someday, this may not be the best arrangement for you.
Every franchise agreement is different, and the rights and privileges obtained under the agreement will differ in each case too. It is extremely important to minimize unpleasant surprises and to properly understand exactly what rights a prospective franchisee is purchasing when buying into a franchise system. All of your territory rights will be outlined clearly in your franchise agreement.
The Franchisologist can help to understand the differences. Schedule a call below.
