Defining territories before opening your first franchise outlet

When you turn an existing business into a franchise network, you will often already have customers, a website and a company-owned outlet. Who will be entitled to serve which customers? Without clear agreements, every new outlet can create friction. A carefully designed territory policy gives franchisees clarity about where they operate, without unnecessarily restricting growth or customer choice.

1. Map your existing customer flows

Start not with lines on a map, but with how customers actually find your business. A shop attracts visitors from nearby neighbourhoods; a maintenance business travels to customers; a consultancy may operate largely online. The same territorial structure will not suit every franchise model.

Use your existing business data to establish:

• Where do customers come from, and where are services delivered?
• Which customers contact you through your website, by telephone or directly?
• Which business customers have multiple locations?
• Which customers do you want to continue serving through your existing business?

Use aggregated data wherever possible. You do not need to share complete customer databases with prospective franchisees for this analysis.

Next, distinguish between the area in which an outlet may be based, the area for active customer solicitation and the area it serves. These need not be identical. A franchisee might, for example, be based in one location, advertise locally and also welcome customers from outside that area. A territory is therefore more than a postcode map.

2. Define exactly what protection you are offering

The word ‘exclusive’ can quickly create expectations you did not intend. Does it mean that you will not appoint another franchisee in the area? That you will not open a company-owned outlet there? Or does the prospective franchisee also expect protection from your online shop and business sales team?

Set out separately what you are and are not committing to. Consider:

• New franchise outlets within the defined area.
• Company-owned outlets, temporary sales points and collection points.
• Existing customers you will continue to serve centrally.
• National contracts and customers with multiple sites.
• Enquiries and orders through central digital channels.

Make any exceptions specific. ‘Strategic customers will remain centrally managed’ is too vague if you could later label almost any attractive customer as strategic. Use clear criteria or a dated schedule listing existing business accounts.

Also check whether the remaining customer potential makes the franchisee’s business commercially viable. A large territory offers little protection if the main revenue streams remain out of reach. Do not present a territory as a revenue guarantee: it is an agreement about rights, not a forecast of results.

3. Set rules for online enquiries and borderline cases

As you expand, your existing website will often become the shared front door to the franchise network. Decide how enquiries will be allocated before the first franchisee joins. For services delivered at customers’ homes, for example, use the location where the work will be carried out rather than automatically relying on the customer’s billing address.

Develop a simple decision process: which outlet receives the enquiry, how quickly must it respond, and what happens if it lacks capacity? Also agree who will inform the customer when another outlet takes over the job.

Test this process against situations likely to cause disputes:

• A customer lives in one territory and works in another.
• An existing customer moves into a franchisee’s territory.
• An online order is collected or returned elsewhere.
• A national client requests services at multiple locations.

For each situation, record who delivers the service, issues the invoice and handles complaints. If revenue or costs are shared, agree that allocation in advance too. This prevents an administrative decision from inadvertently determining who receives the commercial benefit.

4. Have the agreements legally reviewed

The Netherlands has specific franchise legislation: the Dutch Franchise Act (Wet franchise), incorporated into Book 7 of the Dutch Civil Code, Articles 911–922. The Act has been in force since 1 January 2021 and includes obligations to provide information before a franchise agreement is signed.

For your territory policy, this means that relevant territorial rights, exceptions and central sales activities must be clearly disclosed in good time. Prospective franchisees must be able to assess what these arrangements mean for their business. Do not leave material restrictions solely in a separate presentation or a map supplied later.

The Dutch Competition Act and, where applicable, EU competition rules also apply. Territorial protection does not give you unrestricted freedom to prohibit sales outside a territory. Restrictions on active customer solicitation may be permissible under certain conditions; restrictions on passive sales, such as responding to unsolicited customer requests, are generally not permitted. Online sales also require a separate assessment.

Have a specialist lawyer review the arrangements as a whole. A blanket clause stating that no one ‘may sell outside their own territory’ is not a safe standard solution.

5. Make territory boundaries verifiable

Attach a dated territory schedule to the franchise agreement, including both a clear map and a written description of the boundaries. Specify which takes precedence if they differ, and how changes to postcode boundaries will be handled.

Appoint someone within the business to log enquiries and borderline cases. Review regularly whether the agreed allocation works in practice. A review does not automatically entitle you to reduce existing territorial rights unilaterally; that depends on the agreement and the applicable law.

Key practical point: only finalise territories once you have allocated existing customers, central sales and online enquiries. Then test specific borderline cases and have the arrangements legally reviewed before making commitments to a prospective franchisee.