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Area Development Agreement – Everything You Should Know as a Franchisee

Area Development Agreement – Everything You Should Know as a Franchisee

Area Development Agreement – Everything You Should Know as a Franchisee
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Various franchisors have different formats and programs for franchising. There are those who stick with single unit franchises to master, which are often called area development franchises. These are kinds of franchising opportunities that determines what would be the best methods for sustainability and growth. If you are pursuing a franchise opportunity, such options can be made available to you, but all of that depends on your personal objectives, requirements and financial capability.


Area Development Agreement Franchise (Master Franchise)

An area development franchise is one of the more popular approach these days. Typically, an area developer franchisee buys the rights to develop and own a certain territory or an exclusive area. This is commonly a major market or region. Area development agreements are often called master franchising. They often sell parts of their territory to new sub-franchisees. They evolve into sub-franchisors, splitting the roles and responsibilities, as well as the franchise fees with the franchisor. Master franchisees (area development agents) also split ongoing royalties.


Area Development Agreement – What are the Benefits?

Area development agreements can potentially provide higher and more significant financial gains. This is due to three factors – fewer employees needed means low overhead cost. Next, your end customers are your sub-franchisees. Lastly, there is an unparalleled opportunity in developing and recruiting franchise areas versus operating individual units and multi-unit development businesses.

Lower Initial and Maintenance Costs

This is very apparent in the start, area development agreement can operate from a home office. It does not require a huge office space. Commonly, the entire operations can be run by yourself and several support roles can be added in the future such as admin assistant, franchise sales manager, training officer, and marketing officer. These positions can help boost growth sufficient for you to attain a certain level of success. At this point, hiring a district general manager to organize and manage the area development operation can be beneficial.


Less Customers

In this model, your sub-franchisees become your end customers. You will only be narrowing support to a limited number of franchisees in the territory. Area development agreement allows you to project the operations to your sub-franchisees, which will support a large volume of customers daily.


Profit Opportunities

The opportunity for wealth building is way beyond the roof with area development agreement. Comparing the financial growth in franchising industry using this method to individual franchise operations and multi-unit development businesses, there is an unparalleled return of income. Long-term investment versus the quick back: The net return increases with each new unit since franchise fees and royalties are frequently divided between the franchisor and area developer.


In most agreements, there is plenty of opportunities for financial success for those that last ten years. Space for growth must be understood and taken into consideration as there should be proper time and effort appropriated for growing business, especially for franchising.

With all these three benefits, exploring an area development opportunity helps boost your quality of life with the promise of growing the business quickly and leveraging the capital and full-time management to the sub-franchisees. Return of income can be easily achieved once managed and marketed properly. On top of that, you own your own business with exclusive area development territory rights.


What is Included in Area Development Agreement?

While the franchisee may acquire different locations from time to time, an area developer gets involved in a franchise relationship in order to nurture growth in various regions and multiple locations.

Additionally, the area developer agreement signed by the franchisee and an area developer with the franchisor must give them the right and obligation to develop the following:

  1. The number of franchise units.
  2. The duration or time period the franchise holds.
  3. Defined market territory or regional area.


Area Development Agreement Scope: Roles & Responsibilities of Area Developers

Area development agreement enables the area developer to recruit, train and support franchisees in a certain region or territory. The area developer and the Franchisee does not have a franchise agreement. Instead, the Franchisor and the franchisee has direct involvement in the franchise agreement. The area developer only facilitates the identification and recruitment of prospective franchisees.

The franchisor provides payment to the area developer for the services rendered in providing development services to their fold. Usually, the fee is a percentage of the upfront, added to the ongoing fees paid to the franchisor by the franchisee.

Commonly, the rights are set for a specific period of time – the most common terms is five years. Frequently, there are provisions in the agreement that would enable the franchisor to drop the agreement without

cause upon a termination fee payment. The payment can be a multiple of earnings or initial payment percentage made by the area developer. In general, the termination fee can be equal or greater than the initial fee.


Area Development Agreement – Why the Need for It?

As stipulated above, the roles and responsibilities and scope of each entity are listed in the agreement. The area development agreement is needed and used for the very reason of securing and protecting the rights of each stakeholder.

Also, responsibilities and scope are stated there in order to provide limitations and put in writing the bounds of the agreement. Everything must be set in stone so that all the entities involved know their part in the implementation of the franchise.

The area developer agreement is mostly important when dealing financial arrangements – who is paying who, who would be accountable for certain risks and how the payments will be carried out. The agreement will hold in court especially when business is sold or if there are liability issues that needs resolution. Legal implications of the area development agreement can be used in court, to determine the baseline for any legal action.


One of the franchising businesses that can provide opportunities for prospective area developers is DetailXPerts. A deck of franchising options awaits you. If you are interested to be an area developer, DetailXPerts franchise opportunities would be the best choice! Talk with an expert now and be one of our successful area developers!

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