Exclusive territories in the franchising industry give franchisees assurance that a direct competitor won’t open up just a couple of blocks away. Properly allocated franchise territory is a win-win scenario for both the franchisor and its franchisees.
The franchisor is able to adequately penetrate market areas for maximum sales and profits, while franchisees are afforded sufficient territory to generate desired revenues without undue competition or “cannibalisation” from fellow franchisees.
Within the ActionCOACH franchise system, a franchisee has the freedom to operate throughout the master licensee territory, irrespective of where the coach’s office is located.
Typically a franchisor would look at a number of factors to determine the franchisee “density” within a master licence territory, including:
- Population and number of economically active members
- Number of businesses
- Percentage GDP of total SA market
- Number of associated businesses within the territory, such as the number of attorneys and accountants
- International benchmarks for the number of coaches per 1 000 businesses
- The percentage market share that we believe we would be able to capture within the given market
Based on these numbers the franchisor would then arrive at a “franchise density” figure for the master licence territory.
The franchise contract is the most effective way to protect your franchise territory. Franchise contracts are designed to document legal details about the relationship between franchisors and franchisees. Somewhere in that contract there should be a discussion about territorial rights and exclusivity.
The more details, the more protection the franchisee has against territorial infringement. The best thing you can do to protect your territory is to stipulate it upfront in the contract before you buy the franchise. Once you have signed on the dotted line, there is little recourse.