Here at the Franchise GrowthLab, we do a lot of work with franchise start-ups. By far, the # 1 question we get from franchise founders is how much does it cost to franchise my business? If you do a search, the answer ranges from between $10k to $500k. So, I thought it was time for me to address the issue from our point of view.
How much does it really cost to franchise my business?
Last spring, I hosted a session for emerging franchisors at the Canadian Franchise Association on how to start a franchise system. I was joined by two other founding entrepreneurs who had built their systems into hundreds of units, Ken Leblanc, founder of Property Guys, and Steve Gill, Founder of Quesada. I asked “If you could do it again, how much investment would you start your next franchise system with?”
The answer was unanimous: “$1 million.”
Now, take this answer with a big grain of salt. We have all built big systems, and next time around, we agreed that we would prefer to skip over the usual start-up headaches. As founders, we now have the luxury and experience to only work on the things that we are truly great at and love doing, and therefore we now hire for the rest of the roles. As a start-up founder, you rarely have this opportunity, and most don’t have $1 million to invest. So how much money do you really need to franchise your business the right way?
Let’s break this question “How much does it cost to franchise my business?” down into its components:
1. The business model: $0 to $10k:
As I have written before, so many franchisors begin without building a proper tool to analyze and deeply understand the unit economics of their model. The right tool will help your franchisees build detailed budgets, cash flow analysis and planning as they scale their businesses. This important part of your franchise model should formulate the basis of your entire franchise “program.”
Some franchisors have this ability in-house; most don’t. So, if you don’t, it is worth spending around $5k to $10k to get this done. It is ALWAYS STEP # 1 in the The Hartify Method for Starting a New Franchise (our own proprietary system for franchising your business). Our clients see a massive return on their investment in this category).
2. Operations Manual: $15k to $25k
This is a “must have” system for every franchisor. I have seen operation manuals range from 30 to 400 pages long and most are full of boilerplate information that at the end of the day is useless to the franchisee actually operating their business.
If you take the time to write a truly useful document that packages up your most important systems in a clear, concise and detailed manner, the true value of the Operations Manual is:
o In the S.O.P’s, checklists, step-by-step procedures for your most important, essential, non-negotiable systems.
o How it forms the basis for your subsequent training program.
You can choose to write your own manuals – that’s what I did. It took me a full year, allocating every Friday morning to writing. If you have the time and the ability to write your own? Great. (although I should have used that time to keep driving sales). But most people don’t and can’t, so they tend to outsource this function and the costs and quality vary wildly. Nonetheless, you must have an Operations Manual, so you need to make an investment here, (Just choose wisely).
3. Add your missing systems: $0 to $25k
What always becomes apparent after the operations manual writing process is complete, is an inventory of what we call “missing systems.” Once every corner of your business has been analyzed, these are the systems that you should have/need to have but do not yet have. These should be categorized in two groups: must-haves and nice-to-haves. Typically, an investment needs to be made to put these systems into place. When we are guiding this process for clients at Hartify Franchise Consulting, we will build many of these systems for you where we can. For example, we love building Pre-Opening marketing programs. There will simply be some systems you absolutely need to have: a brand guide, social media guidelines, a digital marketing playbook, and a hiring playbook. This leads me to the next cost to franchise your business:
4. Automation: $10k to $50k
I begin every strategic planning process with franchise founders and CEOs with this question: What is the ONE thing your franchise partners aren’t doing that they should absolutely be doing to grow their business? The answer to that question will often lead you to determining what systems you need to automate in your franchise business.
You need tools to help run and operate your franchise system: a Learning Management System (LMS), an intranet, a platform to manage franchisees and their information and communication. You need lots of tools, and it all adds up. An often missed, but vital system is a CRM system. Do you have your email nurturing system down? How automated is it? If this is a manual process, guess what? Your franchisees simply will not execute on it. You need to invest into automating it for them.
5. Training Program: $10k to $25k
If the Operation Manuals are the warm up, the Training Program is game time. Really, the Operations manual process builds the training process, so these two shouldn’t be done in silos. Make sure whoever writes your manuals also has a big hand in shaping your training process as well.
I find that very few founders make good trainers. I certainly do not have this skillset. It drives me crazy – I simply don’t have the patience that a strong trainer requires. Nor do I truly understand how to train someone properly. What I do know is that it is about getting super clear and detailed on your must-have systems, and then building the program to suit.
A good training program can be make or break for your franchisees, so you don’t want to get this one wrong. Down the road, you will be so happy when your franchisees hit break-even 6 months faster because they were trained on the right things, at the right time, in the right way. Spend some money here if you have it and can.
6. A marketing system: $10k to $100k
After we hit our first plateau around the 25-unit mark, it became clear that as a franchisor, we had to become a marketing machine. Really, we had to become a full-fledged marketing company. Why? The most difficult part about building most businesses, especially those businesses that do not have a physical storefront location, is driving leads. So, you better have a kickass marketing system that drives customer leads into your franchisees.
Your franchisees will ask you how big can their business be? Your answer: “If you spend $3,000 per month on these 2 channels, you will generate approximately 100 leads, of which, you will convert at a 40% conversion rate (higher if you are really good at our conversion systems) so you will add 40 new clients per month.”
That is a marketing system.
Have you thoroughly tested all of the marketing and lead generation channels that you expect your franchisees to implement? Do you have data and know the metrics to coach/manage these channels? Do you know exactly how much franchisees will need to spend at start up and per month once they launch to achieve the desired results? Have you built a digital marketing playbook?
Given everything I’ve learned over the years, if I were starting a new franchise system today, this is where a lot of my $1 million start up budget would go.
6. The Pre-Opening Marketing System: $5k to $20k
To get a bit more granular, all of our clients have heard my next bit of advice “If I could do it ALL over again, I would spend most, if not all of my time perfecting the Pre-Opening systems so that by the time our franchise partners launched, they were so full of customers/clients that on opening day they all say “enough! I can’t take any more!” This is why we spend a lot of our consulting time on both our Hartify Method for New Franchise Launch and our Hartify Method for Coaching, Operations & Support. If you get this right, your life as a franchisor will be smooth sailing. This is probably the most over looked/unknown cost to determine what the cost to franchise your business will be.
7. Legal: $15k to $50k
This is one of the steps that every franchisor has to take. You obviously cannot be a franchisor without a franchise agreement and franchise disclosure, which is required in many states and provinces (and is federally regulated in the USA).
I see two problems over and over:
o A franchisor tries to save money by patching together a bunch of disclosure documents from other organization and then gets a cheap, often non-franchise lawyer to put the documents together, or
o The document is so boilerplate that most of the items never get operationalized.
We often become quite involved in the Franchise agreement process with our clients. These documents must contain the most important elements of the operations (so we typically begin after we have a good, solid handle on the operation manuals). Now we can insert the proper “Must Have” operational standards into the document, and then we can build an entire compliance program around these Must Have operational items so it is clear to everyone what it means, why we do it, and how it will impact a franchisee if it doesn’t happen. Imagine if you had that in place when you started your company?
The cost range reflects the counsel you select (some are more expensive than others AND WORTH IT) how many states you will register in, if you are working with a consultant like Hartify Franchise Consulting who will lay the groundwork for your counsel to develop into an FDD, and whether you require trademark searches (and in which countries).
Ok. That is a handful already. To answer the question ” how much does it cost to franchise my business”, we are already between $65k to $325k to do it the right way. We have five more components to go, but some of them are doozies. I think I’m going to stop here and continue the rest of the list in part 2. Stay tuned!
After starting multiple franchise businesses, building and running multiple franchise brands, spending 15 years immersing ourselves into all things franchising, learning how to build a world class organization, and of course, answering the question “how do I franchise my business” at least 150 times, we have compiled our learnings into our Top 10 Habits of Best in Class Franchisors.” Free download below.