In the February blog, I explained the three main types of franchises.

Each of these types requires a different Franchise Agreement:

  • Individual Franchise Agreements
  • Area Development Franchise Agreements
  • Master Franchise Agreements

There are benefits and liabilities to Individual Franchise Agreements, Area Development Franchise Agreements and Master Franchise Agreements.  In February, I talked about the benefits of the Individual Franchise Agreement.

The Area Development Franchise Agreement grants the Area Developer a protected territory in which to open an agreed-upon number of franchises on a negotiated schedule.  If the Franchisee does not meet the opening schedule, the area developer keeps the open franchises and the Franchisor takes back the remainder of the territory.

Area Development Franchise Agreement Pros/Cons

There are benefits to utilizing an Area Development Franchise Agreement program:

  • Often, an Area Development Franchise Agreement enables you to grow your franchise program more quickly.
  • People with the ability and funds to manage several franchises typically are more sophisticated operators.
  • The fewer different Franchisees, the easier and less costly it is to operate as a Franchisor.
  • It can be more efficient for an area developer to operate multiple locations.
  • An Area Development Franchise Agreement can work in tandem with an Individual Franchise Agreement growth strategy.

There can be negatives of an Area Development Franchise Agreement, such as:

  • A higher percentage of prospects can afford to open and operate one franchise rather than several locations.
  • A strong area developer may be more powerful than the Franchisor, particularly with a young franchise program, making control of the brand more challenging.
  • In many cases, an owner-operated franchise can be more successful, resulting in higher royalties per unit.
  • A problem with an Area Franchise Agreement usually impacts multiple locations.
  • Qualified area developers, due to their relative scarcity, have stronger negotiating clout.
  • In some industries, an Area Development Franchise Agreement may not be feasible.

We advise you to study the various types of Franchise Agreements and determine which one(s) are best for your company.

If you would like to speak with one of our franchise consultants today, please don’t hesitate to call (706) 356-5637!