What are the best practices for defining a franchisee's territory in a franchise agreement?

2 Choose your territory type

The next step in defining your territory is to choose the type of territory that suits your franchise model and strategy. There are various types of territories that differ in terms of exclusivity, flexibility, and enforceability. For example, an exclusive territory grants you the sole right to operate within a specified area, along with the most protection and control; however, it may require higher fees or royalties and limit expansion opportunities. On the other hand, a protected territory offers some protection and flexibility, but may also create confusion and ambiguity, and depend on the franchisor's discretion. Lastly, a non-exclusive territory allows you to benefit from the franchisor's marketing and brand awareness, while also lowering your fees or royalties; however, it offers the least protection and control.

3 Define your territory boundaries

The final step in defining your territory is to specify the boundaries of your territory in a clear and precise way. You need to avoid vague or general terms such as "the city of X" or "the county of Y", and use objective and measurable criteria such as zip codes, street names, landmarks, or radius. You also need to consider the impact of factors such as population density, traffic patterns, natural barriers, and future developments on your territory boundaries. You should also include a map or a diagram of your territory in your franchise agreement, and update it regularly if there are any changes.

Defining your territory in a franchise agreement is a crucial decision that can affect your franchise success and satisfaction. By following these best practices, you can ensure that your territory is aligned with your target market, your franchise type, and your territory boundaries, and that it provides you with the optimal balance of protection, flexibility, and profitability.