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Researching a Franchise

Is The Price Right on Your New Franchise?

How to determine whether a franchise is a good deal or overpriced.

Jeff Elgin

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IsThePriceRight

There’s an old saying that “beauty is inthe eye of the beholder.” It has been my experience that “value” is likewisedefined by personal perception.

Value is often brought up by prospectivefranchisees, who commonly ask, “Is the price right?” or “Is the franchise tooexpensive?” or “How do I know what the true costs are in a franchise?” Thesequestions cut to the heart of one of the key factors in making a decision abouta franchise business: whether or not the fees and costs that must be paid to afranchise are fair, reasonable and appropriate.

Let’s start with the last question first.You should have a big advantage with a franchise, because the norm is forfranchisors to disclose all fees and costs in their disclosure document, whichthey must demand prior to any purchase. This document breaks down theinformation you need. Because the franchising sector is not yet regulated by specificstate imposed legislation you will be best advised to follow up on the accuracyof details in the disclosure document by way of your own in-depthresearch.  

Some of the most typical costs and feespaid to the franchisor (or to direct affiliates of the franchisor) include:

InitialFranchise Fees

Most franchise companies require a newfranchisee to pay a one time initial fee to become a franchisee. This fee canbe as low as R100 000 to R150 000 or as high as the sky – in some cases wellover R1 million. The average or typical initial franchise fee for a single unitis about R200 000 or R350 000.

Royaltiesor Ongoing Franchise Fees

Franchisees usually pay an ongoingfranchise fee or royalty. This fee is normally expressed as a percentage of thegross revenue of the franchised business but can also be a fixed periodicamount such as R5 000 per month, regardless of revenue. The average or typicalroyalty percentage in a franchise is 5% to 6% of volume, but these fees canrange from a small fraction of 1% to 50% or more of revenue, depending on thefranchise.

MarketingFees

Franchises often require participation in acommon advertising or marketing fund. This fund is frequently a nationalprogram, but it can also have a regional or local market focus. As with royaltyfees, this can be a fixed contribution, but is more often a percentage ofrevenue in the 1% to 4% range.

RequiredPurchases of Products or Services

Some franchisors also require that afranchisee purchase certain required products or services either from thefranchisor or from affiliated entities of the franchise company. The thing towatch for in this situation is whether the pricing is competitive or not.

Other

There are no other typical or common feesor costs, so if you see anything else in a franchise disclosure, check it verycarefully to make sure it’s appropriate.

The franchisors’ disclosure document willlet you know what these costs and fees are. The other question about whetherthese costs are reasonable is more difficult to answer, because it involves aperception of value. The secret to answering this question is to focus on theglobal picture of the opportunity from your perspective rather than the detailsof any specific fee or cost.

As an example, let’s suppose we’re comparingtwo franchise opportunities, A and B. The total investment required for each isan identical R1,5 million, including initial franchise fee and all other costs.We determine from our investigation that the typical franchisee in A is makingan average profit, after all expenses, of R200 000 per year in their business,whereas the typical franchisee in B is making an average profit after allexpenses of R5 million per year.

In examining the disclosure documents forthe two opportunities, we further learn A has an initial franchise fee of R10000, a royalty fee of 1% and no other costs. Franchise B has an initialfranchise fee of R1 million, a royalty fee of 25%, a marketing fee of 10% andfurther requires the franchisee to purchase required supplies for theirbusiness at what we’ve determined is a 1 000% mark-up – well above competitiverates for comparable supplies.

Which is the better opportunity? Whichdelivers better value to the franchisee? Which is more fair and reasonable inrelation to the fees and costs that they charge? In this example, most peoplewould identify B as a far better opportunity, in spite of the fact that itsfees and costs are dramatically higher than A. This is because, from thefranchisee’s perspective, it offers a much greater return.

The fees and costs that go to the franchisecompany are what they are. The true test of value is what goes to thefranchisee.

That said, there’s one caveat that everyprospective franchisee must be aware of. Occasionally, franchises have averagereturns far outside the range that would be considered normal for a business toproduce. These situations are rare, and they typically don’t last for long,because extraordinary returns tend to attract a huge number of competitors veryrapidly.

If you see an opportunity that looks like Bin the example above, you should be wary about how long these types of returnsmight last. If the business follows form, it will soon attract competitors andexperience pricing pressures that will bring the margins way down. B is notgoing to look very good, with these extraordinary costs and fees, if therevenue starts a rapid downturn. This very dynamic has happened in the past 25years of franchising in the USA in what were booming sectors such as videorental, diet and fitness centres and speciality foods to name a few.

A standard formula for calculating areasonable distribution of business proceeds is one-third of the averagepre-tax profit margin (before any franchisor fees or costs or any franchiseecompensation) goes to the company and two-thirds to the franchisee. If, forexample, the net margin is 21%, then the total of all royalty and other feesshould be no more than about 7%. This formula may or may not seem fair to you,but you will find that many of the most successful franchise opportunities seemto stay very close to this formula.

You should never enter into a franchiseagreement if you don’t feel the fees and costs you’re required to pay thefranchise company are fair and reasonable. Rather than focusing specifically onwhat is going to the franchise company, though, make sure your focus is on whatis coming to you, and then you’ll know if you’re paying the “right price.”

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

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Researching a Franchise

The Digital Headaches Of A Franchise Marketing Team

Here are my top 5 tools that can help control and regulate franchisees marketing with minimum friction.

JG Bezuidenhout

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Franchise marketing teams already know that managing campaigns for a business with multiple locations and/or stores is a time-consuming job.

When it comes to online marketing, many franchisees are frustrated with the mother brands’ national campaign strategy, as it may not suit their immediate needs. This often means they embark down the dangerous route of “rogue” or unapproved campaigns.

This is a huge risk for any brand as there is limited to no control over the message and quality of creative, often resulting in brand CI and best practices not being followed.

Rogue advertising can be totally avoided by a franchises’ marketing team by employing tools that allow them to set up a managed process where franchisees can advertise through. With a managed approval process (preferably automated) it is easier to manage “rouge” content.

Here are my top 5 tools that can help control and regulate franchisees marketing with minimum friction.

1. Create a consistent Facebook content experience whilst still allowing your franchisees to post to their own page

Facebook location pages makes it possible to, as an alternative, allow every store to open a Facebook page, each with different versions of your logo as their profile picture, as well as incomplete profile data or even old or past promotions as their cover image. You as a brand manager can set up each store as a location page on the brand’s main FB page.

The pages can all be linked to the main page and if you change the profile image or cover art, it will automatically update all the other pages. There are also a number of other marketing advantages to this, but most importantly for me was the ability to manage them all from a single interface and clean up all the old and abandoned pages that just confused customers.

2. Manage social media content

Gain is extremely simple to use and connected to all the popular social media platforms such as Facebook, Twitter, LinkedIn etc. As a user, you can create posts or ads and schedule them all from the same window. Once said posts are scheduled, the marketing team can preview the content and approve it for publication or request changes all within a matter of seconds.  Best of all, nothing will get posted without your approval.

3. Free professional looking content in a template

Pablo is an old favourite of mine! It supplies predefined size templates where a user can use free professional stock photos and quickly overlay text. The feature I love most on this tool is the “insert logo” feature, which with the click of a button can overlay a banner or brand element that creates consistent content experiences. Once done, you can export the image and post it to gain for approval. Simple right!

4. Create email alerts for when your brand is found online

Talk Walker alerts is a nifty tool and acts like your personal internet detective who constantly crawls the internet for keywords that you define. I like to use my clients’ brand names and sometimes even my competitors just to keep tabs on their activity. Once set up, you receive daily emails with links to the content in question.

5. Pre-approved marketing creatives and targeting with machine learning optimisation

Lead Gener8or tool can define a bespoke target audience per store and lock advertising geographical areas to prevent any cannibalisation. Once completed, franchisees can execute pre-approved marketing campaigns as and when they wish on any of the integrated channels (SMS, Email, Facebook, Google and Youtube), without any further involvement required from the marketing team.

Powered by big-data machine learning, campaigns are automatically optimised while in flight. Marketing teams can monitor all campaigns in real time. This tool really is a game changer for franchise marketing teams and brand managers.

With these tools correctly implemented into your business, the digital headache of your franchise’s marketing team can subside and focus on what you do best, delivering results!

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Company Posts

Choose A Job You Love, And You Will Never Have To Work A Day In Your Life

Join Col’Cacchio’s 26-year-long love story.

Col'Cacchio

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colcacchio-pizza-franchise-food

Vital Stats

  • Joining fee: R125 000
  • Monthly management fee: 6% of turnover
  • Monthly marketing fee: 2% of turnover
  • Total investment: approx. R2.5m to R4.2m (turnkey) Size: 140m2 to 350m2
  • Unencumbered cash (before loan): 50% of total investment

(Above figures exclude VAT) 

“Owning your own restaurant is like owning your own future.” – Dominic Dempers, Franchisee Durbanville, Belvedere & Meadowridge Cape Town

We’re looking for passionate franchisees who will love our brand as much as we do.

Why you should join this delicious success story

colcacchio-pizza-franchise-dessert

  • Assistance with site selection & lease negotiation
  • Store design & build
  • Full training provided for management and staff
  • Marketing & operational support
  • Product innovation & menu development
  • Efficiency in all systems
  • Healthy margins.

Related: 300 Business Ideas To Inspire You Into Entrepreneurship

#FoodwithaStory

“Our journey started with a single restaurant on the foreshore with the aim to serve the very best pizza around” – Greg Mommsen, Business Development Director

“Watching this brand grow and empowering people has been immensely rewarding. We have staff that have been with us for over 20 years. It’s like a family, we work hard, we laugh, we cry, we celebrate and of course, we eat a lot of pizza.” – Michael Terespolsky, Founder and Managing Director

“Becoming a franchisee is an amazing opportunity to join the family and become part of the Col’Cacchio success story. We’re 100% behind out franchises at every step, making sure that we all continue to learn and flourish” – Greg Mommsen, Business Development Director

“It has been filled with challenges along the way, but all the rewards have made every moment worth it.” – Michael Terespolsky, Founder and Managing Director

Related: Got An Awesome New Business Idea? Here’s What To Do Next

Visit www.colcacchio.co.za or call Tarryn Godley on 084 800 7264 and let’s get this adventure going.

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Smoothie Franchise Opportunity: Puré Frooty Is A One-Of-A-Kind Smoothie Franchise Business

Looking for the next greatest franchise opportunity? Puré Frooty Smoothie is a highly perfected Australian business model launching in the South African market that doesn’t require extensive shop fitting or a large workforce.

Pure Frooty Smoothie

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Vital Stats

Puré Frooty Smoothie is a unique business model to the South African market. A delicious, fruit filled smoothie will be created at the touch of a few buttons.

An Innovative Franchising Concept

This innovation in the healthy smoothie industry is ground breaking for South Africa. The machine is manufactured in Australia by a highly skilled team. It took six years to perfect this business model for the consumer market.

The vision of Puré Frooty Smoothie is to offer convenient on-the-go smoothies for anyone. The experience and quality will always be of the highest standard. We aim to be a staple convenience in malls, schools, office parks and hospitals. This is a platform that will allow for self-growth for passionate entrepreneurs.

Our mission is to create a unique customer experience. We want to satisfy the nutritional needs of customers by providing quality smoothies. Puré Frooty Smoothie will be packed with all the goodness a smoothie should offer.

Related: Why Your Franchise Should Adopt A Shared Value Business Model

The four values we pride ourselves in are:

  1. Convenience
  2. Consistency
  3. Quality
  4. Customer Satisfaction.

Why Consider This Franchising Opportunity

healthy-smoothie-franchise

Extensive research into the business model and market

Puré Frooty Smoothie was an idea, researched widely, by people looking to simplify the business process for the consumer and business owner. There was a gap in the market for simplified customer service and a demand for a quicker turnaround time.

Simplified process for setting up a business

For an entrepreneur it can be very overwhelming to start or buy a new or existing business. There are so many crucial decisions that need to be made from the beginning and new concepts to adapt to.

Puré Frooty Smoothie simplifies that drastically:

  • Free-standing machines: The business model revolves around a free-standing vending machine which needs to be visited to refill and maintenance.
  • No shop-fitting required: There is no need for shop fittings or a large work force. All that is required is an inside space for the machine with a power supply.
  • Minimal human resources needed: In terms of a work force, you could either do it yourself or have one person to assist you. There is also a part time involvement where refill station teams can refill and maintain the machine.
  • Cashless business: The business is completely cashless so there are no worries of a note jam, full cash canister or insufficient denomination rand values. More importantly the machines would do a higher turnover than an ordinary vending machine so safety of no cash is important.
  • Easy tracking of stock and performance: A cloud-based system is linked to the point of sale which allows you to monitor your performance and stock from the back-office platform at any given time.
  • Efficient handling of maintenance: With a live point of sale system, the business is linked to a software which monitors the operations of the machine. Should anything malfunction an immediate notification will be sent with a diagnostics report.
  • Human error is eliminated: Everything is done with a computer which leaves little to no room for errors. It is self-order and very user friendly.

Related: SA Fast Food Franchising On The Rise

Why Will Customers Love It

Puré Frooty Smoothie offers a vending machine that can produce a delicious smoothie in forty seconds. An informative touch screen ordering panel which displays all the nutritional information of the smoothie ordered and has the current news and weather.

No time wasted for the consumer. In fact, it’s a learning session disguised as a waiting period. The machine has two wash cycles after every smoothie is made to be freshly prepared for the next smoothie, business hygiene is important.

Consumers live in the fast lane. We are looking for something quick and most times we would like to be healthier. With the hustle and bustle of today’s life every little bit helps. Puré Frooty Smoothie fills that gap in the market.

Interested in Becoming A Franchisee?

Visit our Franchise Info Page for everything you need to know about how to become information a Puré Frooty Smoothie Franchisee owner.

You can also call or write to us:

Phone / 012-942 6360
Email / info@purefrooty.co.za 

Want to know more about this franchise? Watch the video below for more.

 

ent_mag_6-11-18

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