Home Improvement Franchise Report 2011
Those considering entering into the home improvement franchise industry need to assess their qualifications to see if they match up with those required in this field. The qualifications needed for each franchise system vary by franchisor. For instance, House Doctors isn’t necessarily looking for the technical abilities most often associated with the industry. Because of a strong belief that managing the numbers is key to success, Hunter says that House Doctors looks for “managers with drive who are good communicators and team builders. Our franchisees do not swing a hammer.”
Some other items for prospective franchisees to take into account in researching and evaluating potential franchises include the following.
|The Mobility of Many Home Improvement Franchises
Because the services provided by the majority of home improvement franchises are provided at a customers’ residence, there is a higher occurrence of mobile franchises in this industry when compared to many others. One of the main benefits of mobile franchises is the opportunity for the franchisee to save money on traditional office expenses, which in certain instances can decrease the initial investment involved with investing in a franchise as well as shorten the amount of time it takes for startup.
In certain instances, prospective home improvement industry franchisees will be required to obtain construction or contractor licenses or permits. License and permit requirements vary depending on the laws, ordinances and regulations present where the franchised business is located.
Training & Support
Virtually all home improvement franchisors provide extensive initial training for their franchisees. Training programs generally consist of classroom training and hands-on training for franchisees to gain experience before servicing customers on their own. In certain instances, training can be curtailed or dismissed all together for prospective franchisees with considerable prior experience in a comparable field or industry. Many franchisors offer ongoing support in the form of phone assistance, advertising/marketing support, ongoing training, national conferences, conventions and meetings.
Geographic boundaries of the franchise territory can be set by demographic factors as well as natural and artificial boundaries, which can include one, or a combination, of the following: population density, counties, city limits, zip codes, streets, roads, highways, or rivers. The territories granted to franchisees of home improvement franchises vary greatly from non-exclusive territories to protected or exclusive territories. With non-exclusive territories, the franchisee may face competition from other franchisees of the company, outlets the company owns currently or in the future, or from other competitive brands the franchisor controls or is affiliated with.
The range of investment between franchises can be large due to variations in their business systems and what it requires to execute them.
One payment nearly all home improvement franchises have in common is the franchise fee, a part of the overall initial investment, which grants the franchisee the right to use the franchisor’s trademarks, service marks and other branding. It also gives the franchisee access to the franchisor’s business systems, including training. The average franchise fee among the 24 franchises featured below is $32,450.
The following charts showcase the estimated initial investment ranges of the home improvement franchises referenced. The average initial investment ranges across all of the franchises featured is $93,262-$228,298. (Note: The following data was compiled from the online sources and FDDs of the franchises represented. Please consult the FDD of a specific company for further information regarding that franchise as some costs change occasionally.)
Comparison of Estimated Initial Investment Ranges for Selected Restoration & Repair Home Improvement Franchises
Comparison of Estimated Initial Investment Ranges for Selected Decoration & Renovation Home Improvement Franchises
Comparison of Estimated Initial Investment Ranges for Additional Selected Home Improvement Franchises
Franchise Term Length
The length of the franchise agreement generally falls between five and 10 years for home improvement franchises (some franchise terms can be as long as 20 years) with many franchises offering provisions for renewal terms. There are special cases, however, such as Ace Hardware, where the company doesn’t have a pre-established term; therefore, no renewal option is necessary.
The ongoing costs of home improvement franchises can have just as much, if not more, variation than the initial costs of investing in a home improvement franchise. One of the main ongoing costs is the royalty fee. A franchisor usually assesses a royalty for the franchisee to continue reaping the benefits that come with being a part of the franchisor’s business system. Thought to be a universal charge, there are rare instances where franchisors don’t charge a royalty fee. For example, PosiGrip, a franchise that provides slip resistant technology service for ceramic tile, marble, concrete, tubs and showers, doesn’t charge its U.S. franchisees a royalty fee (there’s also currently no franchise fee for U.S. franchisees as well).
Often, royalties are assessed as a percentage of the Gross Sales (also referred to Gross Receipts or Gross Revenue). The percentage paid can be tiered, based off a sliding scale. In addition, a number of franchisors have a minimum fee for royalty payments. Illustrated below are a few ways franchisors assess royalty fees:
|CertaPro Painters||The greater of 5% of Gross Sales or the required Minimum Royalty Payment.|
|Fancy Art, *N.F.P.||7% of Gross Volume (paid weekly)|
|Re-Bath (Large Market)||$5 for each wall panel; $14 for replacement tubs and shower bases; and $28 for each bathtub liner or shower base liner you purchase from Re-Bath or an approved supplier|
|ServPro||Ranges from 3% to 10% of Gross Volume, plus a Fixed Royalty and Fixed Fee when applicable (see additional chart below)|
Sample of Home Improvement Franchise Royalty Structures
|Monthly Gross Volume, excluding Subcontract Services||Royalty Percentage||Plus Fixed Royalty||Plus Fixed Fee|
|$0 - $5,999||10%||n/a||$45|
|$35,000-$49,999||6.5% on amount over $34,999||$2,450||$115|
|$50,000-$74,999||6% on amount over $49,999||$3,425||$115|
|$75,000-$99,999||5.5% on amount over $74,999||$4,925||$115|
|$100,000 and over||5% on amount over $99,999||$6,300||$115|
Example of a Tiered Royalty Structure (Source: ServPro FDD)
Though virtually all franchisors assess a fee for advertising and/or marketing, the manner in which it is assessed can vary greatly. The following chart illustrates the way five home improvement franchisors assess this fee:
|Franchise||Franchisee Advertising/Marketing Contributions|
|The Closet Factory||Minimum 15% of Gross Receipts (Marketing Fund plus Mandatory Marketing Expenditures).|
|Decorating Den Interiors||4% of Gross Sales or $100/month minimum (a local Advertising cooperative may established in instances where there are 2 or more Franchisees in a local market)|
|Furniture Medic||1% of National Accounts Sales plus the greater of $50 per month or 1% of Gross Sales. Should the minimum monthly fee be the larger of the two fee amounts during the first 90 days after completion of training, Franchisee pays a fee based only on actual Gross Sales.|
|Mr. Handyman||$3,500 per month per territory for Local Marketing Requirement plus 1.25% of Gross Sales for Advertising Fund. If Franchisee achieves a million dollars in annual Gross Sales, Local Marketing Requirement declines to 4% of Gross Sales.|
|PuroClean||4% of Gross Receipts total (Yellow Pages, Local Advertising & Marketing Fee)|
Sample of Home Improvement Franchise Advertising/Marketing Fee Structures
Of course, the fees illustrated in this report are only the most common and not a complete listing. There are additional ongoing fees that are assessed regularly such as technology fees to cover items like server hosting, internet access, etc. Select fees are assessed on an as needed basis such as audit fees or costs for additional training. All prospective franchisees should do their research and carefully review a franchisor’s FDD for more detailed information on all systems, procedures and costs involved before in investing in that franchise.
The home improvement industry can be an exciting market according to those in it. “There is lots of opportunity out there in this industry,” says Hunter. “We are changing from a ‘do it yourself’ culture to a ‘do it for me’ culture. Our population is aging and each generation has less of the skills required to do this type of work. The professional handyman and small home improvement market is an exciting opportunity at the moment and for the future.”