Month: April 2017

Dirty Words in Franchising

Secret

The Value in the Fees

Just about every time we speak to a person who inquiries about a franchise, they get turned off by the franchise fees, advertising fees, royalties and other fees a franchisor assesses their franchisees.  We get that.  As multi-unit franchisees with about $3,000,000 in revenue – we paid a lot in advertising fees and royalties.  There were a few months during the recession where we paid the franchisor more than we paid ourselves.  Were we angry – yes, if you want to be truthful?  Who wouldn’t be? 

So why not go it alone?  We get people who opt to do that.  We do not suggest that because you have to create a brand and trademark it, set up your operations platform by either finding something out of the box or paying a programmer to customize a system just for you, write your operations manual, write your HR manual, figure out who your ideal employee is (there is an art to finding a person who will fit into your culture), hire an accountant to set up your chart of accounts and figure out how to measure your key metrics, find the right retail or office space and figure out how much you really need, design your space to accommodate the needs of the business and you can see this is a very long run-on sentence that I could continue for at least 10 more lines.  Basically, I just scratched the surface of what your initial franchise fee pays for.  I also did not mention the time it saves.  We all agree time is money and many people run out of money just trying to get those doors to open.  We have seen many “mom and pops” with the coming soon only to see them go out of business in a few months because they spent too much money just trying to open.  To be fair, we have also seen franchises do the same.  Those people were also undercapitalized and did not get a realistic picture from a broker or a franchisor about what it will take to be successful. 

Does $25,000 to $50,000 sound a little bit more reasonable?  Here is another dirty little secret in franchising.  Franchisors lose money in selling the franchise.  They are looking long term in revenue from royalties. 

The next dirty word.

Like I had mentioned, we paid a lot of money in royalties.  To be perfectly honest, the support we received was sometimes very disappointing and we sought outside coaches and advisors.  You may have to do that too.  But what do royalties really get you?  I had mentioned support, but what is more important is the operational platform and backbone to automate and measure your business.  When we sit in on initial calls with our clients, we are always amazed at how much technology is woven into an operating system.  For example, you want to open a handyman business.  Seems simple enough, buy a van, wrap the van, buy tools, stock the van and start marketing.  Cha Ching.  If you bought a  Handyman Connection, for example, you would have their training, be coached through their quick start program, have a call center answer your incoming calls and schedule appointments, when the job is bigger than a simple quote – estimating software, and an Uber backed program that allows your customer to see who is coming and when.   Their software is so granular, you can see exactly where you are making money and where you need to improve your margins instantly.  Knowledge is power in your business.  I also forgot to mention they have national contracts with many retailers, real estate companies, and discounts. 

Still not convinced?