diff --git a/TEMPLATES.md b/TEMPLATES.md
index d2404e8..3869d64 100644
--- a/TEMPLATES.md
+++ b/TEMPLATES.md
@@ -708,6 +708,47 @@ docker compose up -d --build || _die "Failed to start services"
 echo "Installation of ${CONTAINER_NAME} complete"
 ```
 
+### External Volumes for Backup/Restore Compatibility
+
+When using Docker Compose with Dropshell's backup/restore system, mark volumes as `external: true` in your `docker-compose.yml`. This prevents docker-compose from trying to manage volumes that Dropshell creates during restore operations.
+
+**docker-compose.yml:**
+```yaml
+services:
+  myapp:
+    image: myimage:latest
+    volumes:
+      - ${DATA_VOLUME}:/data
+      - ${CONFIG_VOLUME}:/config
+
+volumes:
+  mydata:
+    name: ${DATA_VOLUME}
+    external: true
+  myconfig:
+    name: ${CONFIG_VOLUME}
+    external: true
+```
+
+**install.sh** - Create volumes before docker-compose runs:
+```bash
+#!/bin/bash
+source "${AGENT_PATH}/common.sh"
+_check_required_env_vars "CONTAINER_NAME" "DATA_VOLUME" "CONFIG_VOLUME"
+
+# Create volumes if they don't exist (required since docker-compose uses external: true)
+docker volume create "${DATA_VOLUME}" 2>/dev/null || true
+docker volume create "${CONFIG_VOLUME}" 2>/dev/null || true
+
+# Start the containers
+docker compose up -d || _die "Failed to start services"
+```
+
+Without `external: true`, docker-compose will warn during restore:
+```
+volume "mydata" already exists but was not created by Docker Compose
+```
+
 ### Docker Compose Best Practices
 
 1. **Always include `--build`** in install.sh when using custom images
@@ -715,6 +756,7 @@ echo "Installation of ${CONTAINER_NAME} complete"
 3. **Define service names** consistently with `CONTAINER_NAME`
 4. **Handle cleanup** properly in stop.sh and uninstall.sh using `docker compose down`
 5. **Use named volumes** for persistent data that matches Dropshell conventions
+6. **Mark volumes as `external: true`** when using Dropshell backup/restore to avoid warnings
 
 ## Validating Templates