Deciding whether to grant exclusive territories is a key aspect of any franchise model. As a franchisor, you must weigh up the pros and cons before making this decision. It could significantly impact the appeal of your franchise to potential franchisees, affect your overall growth, and influence your market competitiveness. This article explores the key considerations when deciding if exclusive territories are the right fit for your franchise. Remember, seeking advice from a franchise lawyer before finalising your franchise set up can help you make informed decisions.
A. Nature of the Business
The type of business you operate plays a big role in determining whether exclusive territories make sense. Some specialised businesses, like physiotherapy or real estate photography, are well-suited to exclusive territories. These types of businesses don’t typically have lots of customers who visit regularly. Instead, they offer services that clients use sporadically, so franchisees may find it challenging to build a loyal customer base without the security of exclusivity. If you don’t offer exclusive territories, it may deter potential franchisees who worry about competing with other franchisees in nearby areas. In these cases, exclusive territories give franchisees confidence that they will have control over a specific geographic region, allowing them to focus on growing the business.
However, for businesses that rely on high foot traffic or frequent visits, such as retail or fast food, exclusive territories might not be necessary. In these cases, the proximity of multiple franchisees might actually boost brand awareness and customer loyalty.
B. Growth Plans
Granting exclusive territories requires careful consideration of your growth plans. If you make these territories too large, it could limit your ability to expand in the future. Franchisors should take a long-term view when setting up exclusive territories. Ask yourself how many franchises you plan to open and where you want to expand. You need to ensure there’s room for growth in key regions while balancing the needs of your current franchisees.
For example, if you grant large exclusive territories now, it may be difficult to introduce more franchisees later without infringing on existing franchisees’ rights. This could hinder your ability to expand and maximize revenue. It’s a delicate balance – give territories that are too small, and franchisees may struggle to generate enough income. But make them too large, and you could be limiting your brand’s future potential.
C. Competitor Analysis
A smart franchise set up should always involve a look at what your competitors are doing. Are they offering exclusive territories? If so, how big are the territories? Are their franchisees successful under that model? By examining competitor strategies, you can ensure your franchise offering is competitive and attractive to potential franchisees. If your competitors offer exclusivity and you don’t, you could risk losing potential franchisees. On the flip side, if you offer exclusive territories and your competitors don’t, you may have an advantage in attracting franchisees who value security.
But it’s not just about copying your competitors. You need to adapt their strategies to your business model. Work with a franchise lawyer to ensure your franchise agreements are competitive yet tailored to your unique business needs.
D. Lead Generation
Another critical factor to consider is your lead generation capabilities. Franchisees often rely on the franchisor for marketing support and new leads, especially in the early stages. If you grant exclusive territories, you need to assess how your current lead funnels will perform in those regions. Will you be able to generate enough leads for franchisees in each exclusive area? This is particularly important in businesses where franchisees are dependent on the franchisor for leads, like certain service-based or home-based businesses.
If your business relies on centralised lead generation, you’ll need to ensure you have the resources to provide a steady flow of new leads for each exclusive territory. Without strong lead generation, franchisees in exclusive territories may struggle, leading to dissatisfaction and potential conflicts.
E. Marketing: Local Marketing Area vs Exclusive Territory
Many franchisors choose to grant a Local Marketing Area (LMA) instead of or in addition to an exclusive territory. An LMA is a defined area where the franchisee has the right to carry out local marketing and promotion. This can be particularly useful for mobile operations like lawn mowing, pest control, or mobile dog grooming, where customers are spread out over a wide area. In these cases, a Local Marketing Area may make more sense than a strict exclusive territory.
This approach allows franchisees to focus their marketing efforts in a specific region without limiting the franchisor’s ability to expand into other areas. The LMA model also encourages franchisees to take control of their local marketing efforts, which can help build a stronger customer base in their area. However, make sure your franchise agreements clearly outline the boundaries of the LMA and the responsibilities of both parties.
Conclusion
Granting exclusive territories is a major decision that impacts your franchise’s appeal, growth, and overall structure. The nature of your business, your growth plans, competitor analysis, lead generation capabilities, and marketing approach all play important roles in this decision. Consulting a franchise lawyer before making any decisions about your franchise set up will ensure you make choices that benefit both you and your franchisees. Remember, each business is unique, so consider what will work best for your brand and long-term goals.
Ultimately, whether you decide to offer exclusive territories or adopt a Local Marketing Area model, your decision should be driven by the specific needs of your franchise, your ability to generate leads, and your growth plans. Make the right choice, and you’ll set up your franchise for long-term success.