Defining Franchise Territory Boundaries
Franchisors often offer and sell territories for specific geographic regions. Franchisors grant various degrees of franchise protection ranging from an exclusive territory down to a grant for a single specific location with no geographical protections. It is particularly important for franchisors that grant rights in a geographic region to understand the importance of the metrics they use to define a franchise territory.
The most common method of defining a franchise territory s by ZIP Code - but is this the best method?
Franchisors should understand the metrics they use when defining a franchise territory and ensure their grants are properly drafted to avoid disputes as artificial boundaries change over the term of a franchise agreement. Many franchisors and franchisees are entirely unaware of how ZIP Codes change.
Understand Zip Code Boundaries
Franchisors often use Zip Codes to define franchise boundaries. People understand Zip Codes and they serve as an easy identifier. However, there are some common misconceptions around the definite nature of Zip Codes.
Did you know that Zip Code boundaries are not fixed, official lines like state or county borders?
Instead, Zip Codes are estimated service areas primarily used by the U.S. Postal Service (USPS) to manage mail delivery efficiently. Here’s why they are considered estimates and how they change over time
Why ZIP Code Boundaries Are Estimates
Purpose-Driven Design – ZIP codes were created for mail delivery routes, not geographic precision. Their boundaries are defined by USPS for operational convenience rather than exact mapping.
Lack of Official Geographic Definitions – The USPS does not officially map out ZIP code polygons. Instead, private companies and government agencies approximate them using address data.
Variations in Different Mapping Sources – Since no official boundaries exist, different datasets (e.g., Census Bureau ZIP Code Tabulation Areas or private GIS providers) may define ZIP codes slightly differently.
How ZIP Code Boundaries Change Over Time
Population Growth & Urban Expansion – As cities grow, existing ZIP codes may become too crowded, leading USPS to split or reassign them.
Mail Volume & Logistics Adjustments – USPS occasionally reorganizes delivery routes to improve efficiency, which can lead to boundary shifts or new ZIP codes.
Changes in Infrastructure – New roads, businesses, or residential developments can cause ZIP code areas to be redrawn to match changing delivery needs.
Mergers & Eliminations – Sometimes, low-population or low-mail-volume ZIP codes are merged into neighboring ones.
How Often Do ZIP Code Boundaries Change?
ZIP codes change as needed, rather than on a fixed schedule, based on population growth, mail volume, and USPS operational needs. However, changes typically occur multiple times per year in different parts of the U.S.
The number of ZIP code changes per year varies, but hundreds of ZIP codes change annually due to splits, merges, reassignments, and boundary adjustments.
Census Tracts Are A More Reliable Metric When Creating Franchise Territories
Census tracts are small, relatively permanent statistical subdivisions of a county or equivalent area, created by the U.S. Census Bureau to analyze population and demographic data. They typically contain 1,200 to 8,000 people, with an ideal size of about 4,000 residents. Tracts aim to maintain homogeneous population characteristics (e.g., economic status, living conditions) to allow for meaningful statistical comparisons.
How Census Tracts Change Over Time
Census tracts are designed to be stable for long-term data comparisons, but they do change due to shifts in population and development. Changes occur in the following ways:
Splitting of Tracts
When a census tract grows too large due to population increase (e.g., suburban expansion or new housing developments), it may be split into two or more tracts to maintain manageable population sizes.
Merging of Tracts
If an area experiences population decline (e.g., economic downturns, urban decay), its census tract might merge with an adjacent tract to maintain statistical reliability.
Boundary Adjustments
Occasionally, tract boundaries are redrawn slightly to align better with city limits, natural features (rivers, highways), or significant shifts in neighborhood development.
Re-numbering
If a tract is split or merged, its identifying number may change. Typically, when a tract splits, the new tracts receive decimal extensions of the original number (e.g., Tract 102.00 might split into 102.01 and 102.02).
How Often Do Census Tracts Change?
The Census Bureau reviews and updates census tracts every 10 years (during the decennial census).
Local planning agencies may propose adjustments through the Participant Statistical Areas Program (PSAP) before each census.
How to Improve Franchise Territory Boundaries
Franchisors can improve in two key ways:
Use a Map and ensue proper verbiage in the grant. For example: Franchisee's Territory under this Agreement will consist of the geographic area depicted in the following map and identified by the [U.S. Zip Codes or Census Tracts], as they exist on the Effective Date, in the table below.
Consider using Census Tracts instead of Zip Codes. Although the average franchisee is most familiar with Zip Codes, Census Tracts provide more stability. Census Tracts also change, but not as drastically or as often as a Zip Code.
Franchise Territory Mapping Software
Some franchise territory mapping softwares utilize zip codes and census tracts and allow franchisors to build territory based on their preference. We designed the ZORS franchise territory mapping software and CRM platform to allow franchisors with this flexibility.
The ZORS mapping software allows franchisors to select and build a franchise territory by census tract and to view economic and demographic information at the census tract level. This allows for more precision and may eliminate future disputes.
Clearly defining a territory is particularly important as franchisors grow over time. If you aren’t utilizing ZORS to map your franchise territories, you should consider asking how your territory mapping software deals with changes that occur over time.
ZORS features include a map layer for Census Tract data
