Franchise basics; What is a franchise territory?

By Nick Hall | 06 Jan 2020 View comments

When you first begin discussions about a particular opportunity, chances are, you’ll hear the phrase ‘franchise territory’. But what exactly does that mean?

As a franchisee, it is vital you understand the differences between the terms used to describe areas, as well as your franchisor’s legal commitments around these. Whether it be franchise territory, exclusion zone or marketing levy, franchise systems are filled with sector specific business terms and jargon that you must be across.

Put simply, franchise territory planning is a phrase that is commonly used by franchisors and analysts who are attempting to shape a geographical area of a franchise’s marketing arrangements.

However, it’s not always as simple as finding your spot on the map.

We spoke with Peter Buckingham, managing director of demographic mapping, franchise territory planning and statistical analysis business Spectrum Analysis about what aspects franchisees should be aware of.

What is a franchise territory?

When it comes to deciphering what a franchise territory really is, Buckingham proposes thinking of a national border patrolled by armed guards, that no one can cross.

“This is a very hard line to be observed. I believe a territory is really only relevant when a franchisor is allocating leads to franchisees,” he said.

“The territory is the commitment from head office that every lead that comes from within this area will be correctly allocated. This may mean a territory is an exact number of postcodes or suburbs, or a fine line down a road so that all the leads from one side go to Franchisee A, and all on the other side go to Franchisee B.”

Buckingham said the notion of a franchise territory is particularly important when it comes to industry-specific operation.

“This is extremely important in a business like mortgage broking, as a business like Aussie Home Loans or ANZ Mobile Bank needs to be completely confident when passing on a lead,” he said.

“Franchisee A would be quite upset if he finds Franchisee B was given a lead, which should have been his, that ended up generating a $20,000 commission.”

In this instance, the franchisee territory is directly correlated to incoming leads and potential income. For this reason, Buckingham believes that a franchise territory must have a rigid geographical border.

“In my view, a territory must be correct, and must have exact geographic boundaries using the mapping boundaries provided by the ABS or exact roads so an area is defined,” he said.

“This may result in using Google Maps so you can tell exactly where an address is and ensure it is assigned to the correct franchisee.”

If you are considering a franchise opportunity, make sure you understand the requirements and boundaries of your franchise territory. Ultimately, this will provide the framework from which your work will generate.