Franchise Territories Tied to Sales Quotas - Careful Consideration
One thing that is important when considering a franchise business opportunity regardless of category is to look carefully and read over the exclusive territory rights. I always recommend that prospective franchise buyers re-read this section 5-times, until they can explain it back to me without looking at it.
Why you ask? Well, it’s simple really, you see, some franchise disclosure documents have the exclusive territory ending at the front door, while others give you a wide area like a 10 mile radius, an entire zip code or use the city limits. Still, some exclusive territories can change based on your sales volume, franchise attorneys call this an Exclusive Territory Tied to Sales Quota.
Now then, you might not think anything of this when shopping for a franchise business opportunity for sale, but let me tell you, this would be a mistake. For instance, consider it you owned one of the many retail franchise opportunities and during this year, the economy was very poor and you could not even come close to last year’s sales volume or your required sales quota and because of this your franchisor was allowed to sell an additional outlet very near your store?
You can see the problem, as this might take away a good chunk of your sales volume, maybe even enough to nix your profits even after the economy returned to full-steam.
Now then, before you completely consider this a no-win situation, you must also remember that if the sales quotas are fair, and a fellow franchisee in your franchise system is not pulling his or her weight, you’d want your franchisor to put in another unit nearby to prevent your competition from gaining strength and getting a foothold, which diminishes the entire brand name and thus, hurts you too. So please think on this.
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