A franchising expert has issued a warning to prospective franchisees about exclusivity rights, after a former Jim’s Cleaning franchisee claimed he lost exclusivity in his assigned territory.
Bob Conkey, the former franchisee of Jim’s Cleaning Vaucluse, claims his business suffered a loss of $33,000, partly due to the dwindling number of job leads he received.
Get business news first
Sign up to SmartCompany’s daily newsletter
“When I signed up with Jim’s [Group], I was receiving one job lead per day, which I was happy with. Eighteen months later, I was getting around one per week,” Conkey says.
“I used to have exclusivity in my territory, but now people in other territories can quote on those jobs.”
According to Jim’s Group founder Jim Penman, every franchisee in the network is assigned a particular territory, in which they have “absolute” first right of refusal.
However, Penman says if a franchisee does refuse a lead, it is then passed on to the franchisee operating in the next closest territory.
“We shouldn’t say no to a client – why would I? That’s in every contract,” he says.
“There is also a specific clause that if we inadvertently give a lead in that area to someone else, there is specific compensation.”
According to Penman, Jim’s Group had 80,000 unserviced leads last year, many for cleaning. He says the number of leads is growing faster than the number of franchisees.
“What a good operator will do is build their regular client base. After 18 months, if you haven’t got regular clients, there’s something wrong,” he says.
Jason Gehrke, director of the Franchise Advisory Centre, says the issue comes down to the usefulness of having exclusivity rights within franchise agreements.
“It’s generally common that retail franchisees don’t have defined territories, but there is usually some kind of trading area allocated to them in which they can promote their goods and services,” Gehrke says.
“With mobile franchisees, exclusivity of territory takes on a greater meaning to the franchisees because the lines on the map represent possibly the most tangible part of the franchise offer.”
Gehrke believes there are pros and cons with regard to exclusivity rights.
“On the one hand, it gives franchisees a sense of comfort – they have the sole rights to exploit the market of a particular area,” he says.
“But, from a customer’s point of view, if they have been dealing with franchisee A and then told they can’t deal with franchisee A because he serves the territory next to the one in which you want the services provided, and you must now deal with franchisee B, that’s frustrating.”
“Franchisors who grant exclusive territories will do so on the proviso the franchisee is putting in their best effort to maximise the potential for that territory.”
Gehrke says it also comes down to how much the franchisee understands about the exclusivity of their territory when they join the network.
“In my experience, many franchisees… don’t read the agreements or understand them when they sign. A significant proportion of franchisees in service systems don’t get proper advice,” he says.