Learn why new franchisors should be cautious when offering an
Area Representative opportunity.
A number of franchisors offer an Area Representative program, in
addition to the traditional unit franchise opportunity.
Occasionally, confused with an Area Developer or multi-unit
franchise development program (common in the QSR sector a franchisee
entity contracts to open multiple locations) an Area Representative
is responsible for executing a franchisor’s plan in an assigned
territory. An initial franchise fee is paid for a territory or
region, capable of accommodating multiple franchisee locations. The
AR is typically responsible for recruiting franchisees,
site-location, in some cases responsible for training, on-going
support and administering franchisee compliance with system
standards. An AR can receive a portion of the franchise fee and a
percentage of the royalty. Under an AR program a franchise agreement
is executed between the franchisor and the franchisee in the AR
territory. A recent change in franchise disclosure requires that the
offering of Area Representative Franchises by a franchisor must be
in a separate FDD from the offering of the unit franchise.
The most successful AR program was implemented and executed by
Subway, which has added thousands of franchisees under its Area
Representatives. In the recent past the AR program has become
popular among a number of start-up franchisors, with the allure of
providing fast system growth. Over the course of this year,
statistics will be available via FranchiseGrade.com as FDD’s are
updated including the separate AR FDD’s. Although there can be
substantial benefits from an AR program, its implementation by new
franchisors should be carefully considered. In fact, I would
recommend that new franchisors forego introducing an AR program
until their franchise system is settled and has undergone a degree
The reasons are:
1. Regardless of how prepared a company is when introducing a new
franchise program, there will always be some adjustments that will
need to be made. By entering an AR program before a “shakedown”
period for the new program has passed, could result in lots of
2. An AR relies upon new franchise sales in order to earn an ROI
on their investment. An aggressive AR may attempt to bring on
unqualified candidates, in order to populate their territory or meet
their performance goals.
3. Although an AR has responsibilities to support new franchisees
in their territory, the AR is a quasi-broker in terms of franchise
4. A complex franchise program that requires substantial
oversight and support may not lend itself to an AR program.
5. An AR can be a buffer between the franchisor and franchisee,
which can be a benefit but also problematic. The franchisor which is
on the franchise agreement with its franchisees could be in the dark
regarding franchisee problems, since the AR is the initial contact.
Moreover, in certain cases a disgruntled franchisee may be reluctant
to bypass their AR and contact the franchisor directly.
6. Under an AR program there is the potential for vicarious
liability due to the AR servicing the franchisees. This means that
the franchisor must diligently oversee and monitor the performance
of its AR’s. This begs the question; why a franchisor should have an
AR program when it can retain all fees and royalties and utilize its
An Area Representative program is a tempting concept for
franchisors offering a pathway for faster growth. However, before
introducing an AR program the implications should be carefully
considered. This is especially true of new franchise systems, which
have yet to establish the foundation of a solid franchise network.
© 2015 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating
Officer, FranchiseGrade.com. He is a former
franchise executive and franchisee. He can be contacted at 631-246-5782 or