What is an Area Representative?
Probably created in response to sub-franchising, franchisors did not approve of the loss of power and sharing of royalties when they could easily have the entire cookie. The solution resulted in the arrangement known as the Franchise Area Representative.
The Area Representative pays a certain fee for the right to solicit prospective franchisees and to provide certain service to existing franchisees in a defined franchise territory. The Area Representative acts as a salesperson for the franchisor and once they find a new franchisee, the area representative does not enter into any contracts with the franchisee. They do not exercise any power unlike a Sub-franchisor. All the franchise agreements are entered into directly between the franchisor and the prospective franchisee. All payments by the prospective franchisee are made to the franchisor and no transaction takes place between the prospective franchisee and the Area Representative.
The reason why anyone would choose being an Area Representative is that they are paid a certain portion of the initial franchise fee of each new franchisee they solicit as compensation. Aside from the sales commission the area representative may get paid by the franchisor a portion of the royalties received for servicing franchisees. In some cases, franchisors will pay the area representatives a portion of the fee received from new franchisees in the reps’ territory even though the area representative may have had nothing to do with the screening or recommending that particular franchisee. However, all these and other contingencies- such as compensation for furnishing many of the pre-opening and on-going services to the franchisee- should be covered in the area representation agreement.
The area representative is most often a franchisee in the defined territory, owning one or multiple units. The area representative may own a unit completely or may have smaller ownership in several units.
Franchise Disclosure Document for Dummies – Part 3
In Item 8 of the FDD, franchisors are required to disclose designated and approved suppliers, franchisees’ mandatory purchases, and any rebates they receive from vendors as a result of franchisee purchases.
The American Dream is NOT Out of Reach!
In the definition of the American Dream by James Truslow Adams in 1931, "life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement" regardless of social class or circumstances of birth.
Franchisor Training and Support
The franchise agreement should spell out all initial and continuing training obligations of the franchisor in detail. You should also query the franchisor about the following:
