Franchise growth is built on consistency — in branding, systems, support… and yes, even in territory design. That’s why what you put in Item 12 of your Franchise Disclosure Document (FDD) isn’t just boilerplate—it’s a legal and strategic foundation that impacts far more than real estate.
One area where this shows up in a big way?
👉 Item 19: Financial Performance Representations (FPRs).
Today we’re unpacking:
🧩 How vague or inconsistent Item 12 territory descriptions create Item 19 problems
🧮 Whether a franchisor can use data from dissimilar territories to make earnings claims
🗂️ How to still make FPRs using grouped territory data (carefully!)
⚖️ Legal landmines franchisors face when they ignore these connections
💡 How tools like Zors’ franchise territory mapping software can help you stay consistent and compliant
Let’s start with the basics:
Item 12 is where you disclose the size, type, and exclusivity of the territory granted to the franchisee.
Item 19 is where you can choose to disclose financial performance representations — i.e., earnings claims.
Seems unrelated, right?
Not so fast. ⚠️ If you disclose average or median performance data in Item 19, and the units that generated that data operated in very different territories than what you’re offering to new franchisees, then that disclosure might lack a reasonable basis.
Because under the FTC Rule:
All financial performance representations must have a reasonable basis and the franchisor must have written substantiation at the time the representation is made.
So if you're using performance data from franchisees that operate in an area with a population of 1,000,000 to sell franchises with a population of 100,000 people - then your Item 19 is likely misleading and lacks a reasonable basis.
Let’s say your franchise locations are all over the place:
Some franchisees have exclusive rights to entire counties
Others get a 3-mile radius
A few operate from non-exclusive locations with zero defined boundaries
Now, let’s say you publish a glowing Item 19 with average gross revenues of $1.2M. 🤑
But guess what? Most of that average came from the larger, older, rural territories. Meanwhile, your new franchisee in a dense downtown area is working within 1/5th the area and competing with multiple other units.
Can they reasonably be expected to achieve the same revenue?
A smart franchisee (or their lawyer) might say: no way. And that turns your Item 19 into a liability.
Yes — but do it with caution.
Some franchisors try to segment FPR data like this:
“Units with territories larger than 100,000 population”
“Units with territories between 50,000–100,000 population”
“Units under 50,000 population”
This is a step in the right direction. ✅ It shows an attempt to group data in a way that respects material differences.
But here’s the catch:
You must clearly explain the territory differences in Item 12
You have to disclose all material characteristics of the sample population
You must update the FDD each year to ensure the data remains accurate
Without this rigor, your segmented FPR can be just as misleading as a one-size-fits-all claim.
Franchisors who rely on overly optimistic or misaligned financial claims can face:
Franchisee lawsuits alleging fraudulent inducement
State regulators denying or revoking registration
Class actions from groups of underperforming franchisees
Loss of credibility with brokers and consultants
The problem often isn’t that the numbers were false—it’s that they weren’t applicable to the new franchisees' situation.
❗ Key takeaway: If your Item 12 territories aren’t consistent, your Item 19 needs extra care.
A well-drafted Item 12 isn’t just a legal checkbox—it’s a strategic asset that can unlock cleaner, safer financial disclosures in Item 19.
So if you're planning to make earnings claims (or even just thinking about it), make sure your territories:
Are consistently defined
Have material characteristics disclosed
Can be segmented in a meaningful way
Align with the data used in your FPR
Need help getting there? Zors can help you take control of your franchise territory strategy—before it ends up controlling you.
👉 See how Zors can power your franchise compliance and growth.
Explore our features like Territory Mapping and Franchisee Lifecycle today.
🛑 Disclaimer:
The information provided in this blog post is for general informational purposes only and is not legal advice or a substitute for consulting with a qualified attorney. Franchise law is complex and highly nuanced, governed by both federal regulations and varying state-specific laws. Proper legal guidance requires a detailed understanding of these rules as applied to your specific circumstances. You should not act—or refrain from acting—based on anything in this post. You should consult your franchise attorney for legal advice.
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