A franchise territory is the area the franchise agreement gives you to operate in, and sometimes the area where the brand agrees not to place another location. Some territories are exclusive, some offer limited protection and some offer none. What you actually get is written in the franchise agreement and described in Item 12 of the brand's Franchise Disclosure Document, so read that item closely before you commit to an area.
FranchiseHook helps people considering ownership research territories across more than 600 franchise brands through IFPG, including whether the area they want is open. Our consulting is 100% free to you.
What kinds of territory are there?
| Type | What it usually means | What to watch |
|---|---|---|
| Exclusive or protected | The brand agrees not to open, or license, another unit in your area | Conditions you must meet to keep the protection |
| Non-exclusive | You may operate in the area, but so may others | How close another unit could open |
| Location only | You may operate at one approved address | Whether the brand can open nearby at all |
| Service area | You serve customers within set boundaries, common in home-service brands | Whether other owners can serve customers in your area |
Brands define territories in different ways: by ZIP codes, a radius around your location, population counts or a map. Ask how yours is defined and how many potential customers it contains.
What does Item 12 of the FDD tell you?
The FTC Franchise Rule requires every franchisor to describe territory terms in Item 12 of its Franchise Disclosure Document. It must say whether you get an exclusive territory, and it covers points such as:
- Whether the franchisor or other owners can sell into your area, including online or through other channels.
- Whether the franchisor can open or license competing outlets under a different brand it controls.
- Any conditions for keeping your territory, such as minimum sales.
- Whether you can relocate or add more units.
If Item 12 says you will not receive an exclusive territory, you may face competition from other franchisees, from outlets the franchisor owns, or from other channels the brand uses.
Which questions should you ask the brand?
- How is my territory defined, and how many potential customers are in it?
- Is it exclusive, and what could cause me to lose that protection?
- Can the brand sell to customers in my area online or through national accounts?
- Is there a minimum sales or growth requirement?
- Can I buy the territory next to mine later?
- What happens to my territory if I sell the business or renew the agreement?
Then ask current owners the same questions. Their experience tells you how the brand applies its territory terms in practice.
How should you judge whether a territory is good?
A protected territory only helps if it holds enough of the right customers. Look at:
- Demand. How many households or businesses in the area fit the brand's customer profile.
- Competition. Other brands and independent businesses already serving the area.
- Access. Traffic, parking or travel time, depending on the business.
- Your own life. How far you are willing to drive, or how close you want the business to home.
How does FranchiseHook help?
During discovery we look at your goals, budget, involvement and geography before any brand is discussed. When we present a focused set of brands, territory availability is part of the research: where each brand operates, whether your area is open, and what to ask the brand. You then talk with the brand and existing franchisees and review the disclosure document with your own attorney.
Frequently asked questions
Do all franchises come with a protected territory?
No. Some offer exclusive territories, some offer limited protection and some offer none. Item 12 of the FDD tells you which.
Can a brand open another location near me?
It depends on your agreement. Read Item 12 and the franchise agreement with your attorney.
Can I own more than one territory?
Many brands allow it. Ask about multi-unit and area agreements, and the requirements that come with them.
Does FranchiseHook check whether my area is available?
Yes. Territory and brand research is part of our free consulting.
This article is general information, not legal or financial advice. Review any FDD and franchise agreement with a franchise attorney and financial advisor before investing.
Want to know which brands are open in your area? Start with FranchiseHook or complete the franchise questionnaire.