How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
As you look into the Canadian franchise opportunities available, one important part of your franchise agreement to review is where you will operate and how your territory will be defined. Whether you are looking at service franchises or those that require a brick-and-mortar spot, it's the territory you have that will supply your customers and revenue.
In the same vein, franchisors consider how they can maximize the revenue generated in any given area, and to do so, many use various territory protections.
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Exclusive territory
When you have exclusive territory rights, your franchise becomes--at least in theory--the sole source of the franchisor's services or goods in the agreed-upon area. The idea of the exclusive territory is to make sure you have a big enough market to achieve success yet small enough to be effective and efficient. In some franchise systems, the lack of a definition for territories can pose a serious risk to franchises because they may become overwhelmed. While territory boundaries vary by brand, they are often determined by zip code or are made of a defined radius from your specific location.
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Protected territory
When you have a protected territory, you will have a set area to operate it, but your franchisor will allow customers in that area to get services and goods from other sources, such as online sales directly from your brand.
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Unprotected territory
Under this arrangement, you do not have any protected territory. This isn't necessarily a bad thing--with brick-and-mortar stores, for example, you may benefit from having some sister stores nearby in the form of brand recognition. However, in this case, you will need to ask the franchise about scenarios that could arise in the future. If, for example, the opening of a competing location nearby greatly impacts your revenue, what will the franchisor do? Are you given the first right to purchase another territory nearby if it becomes available? Since franchisors want to receive as much revenue as they can from franchisee locations, it is always possible the brand will open competing stores to boost revenue.
When you review the territory portion of your franchise agreement, make sure you fully understand what type of territory you will be receiving and all the relevant terms. If, for example, you will receive protected or exclusive territory, ask the franchisor for the details on any potential or current exceptions to these protections so you are never caught off-guard.
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