As many contractors have discovered, running a home improvement company takes more than just field skills. Successful operators also need business, marketing, and managerial acumen, especially in the fast-paced, highly competitive specialty remodeling field. What’s a person to do without those skills?
For an increasing number of contractors, the answer seems to be: Join a franchise.
“Home services and franchises are really hot right now,” said Sean Young, corporate development director for the Glass Guru, which operates 90-plus independently owned franchise locations throughout the U.S. and Canada. “We’re going to see a lot of people look at this over the next decade.”
That’s because property owners are just starting to come out of the “wait and see” mode they’ve been in since the Great Recession, said Young, who’s been in franchising for 27 years with brands such as California Closets and FastFrame USA. As that market grows, he expects franchises will grow with it.
Young’s franchise is bearing that out. It’s already grown nearly 18% this year compared to just 14% in all of 2016. And the number of franchises between 2015 to 2017 went from 60 to 90. Still, the number of home improvement franchises is tiny compared to overall franchises, according to the International Franchising Association. Of its 1,443 franchiser members, only about 4%, or less than 60, fall under the broad category of home improvement.
It’s too bad more contractors aren’t franchising, because it’s holding the industry back from faster growth, said Abbe Will, a research analyst with Harvard’s Joint Center for Housing Studies. Large scale remodeling companies enjoy higher revenues per employee and economies of scale. But most remain smaller than comparable sectors, such as construction and wood product manufacturing.
“The industry continues to be highly fragmented, with the vast majority of remodeling companies operating as relatively small, single-location businesses that likely will not experience any significant growth over their life-cycles,” Will wrote in a research report in which she interviewed a number of large-scale companies.
Will’s study concludes that specialty remodelers are particularly well-suited to franchising and large scale, as compared with other remodelers. “Specialization allows companies to develop greater efficiency in their operations and obtain more favorable pricing on materials compared to full-service remodeling firms,” she wrote. “Specialty projects also tend to be relatively straightforward and less labor intensive for scheduling and installation, which means shorter job cycles and higher margins.”
Another benefit of franchising is gaining the power of corporate marketing and branding. “Even though some of our franchises are small, they have the resources of a large organization,” Young said. “From the day you open your door, you have a pretty sophisticated SEM program in place. As soon as you turn it on, the phone starts to ring.”
No wonder Young’s top 25% of franchisees have seen their business grow nearly 60% on average compared to 2017 year to date.
Still, franchising isn't for everyone. For starters, there’s the upfront fee. Young’s averages around $25,000. Then there’s the ongoing royalties contractors pay their franchises, which in Young’s case is 6%: 5% on gross sales and 1% for national marketing costs. “Those are the fees that I want potential franchisees to see value in,” Young said.
But the bigger questions revolve around temperament, Young said. For example, signing with a franchise limits the control owners have in operating their business. Franchising means you are essentially “leasing” the rights of the territory and the brand. And you will be held accountable to franchise expectations.
“You don’t want to get into a franchise agreement only to discover, ‘Uh, I’m not very good at coloring between the lines,’” Young said.
If none of that is a deal-breaker, Young said it’s important to do a lot of due diligence before signing a franchise agreement. Remember to:
· Carefully read the franchise’s written information. · Check with other franchise owners to find out what their experience has been.
· Meet the franchise support team
· Know your operational latitude under the franchise agreement
· Ask a CPA, attorney, or other trusted business expert to review the franchise disclosure.
Ultimately, joining a franchise means accepting what you’re good at and what you’re not—and making peace with that reality. “Maybe you say to yourself, ‘I’m really good at glass. I’m not good at everything else,” Young said. “Know your core competencies. What are you passionate about? Understand your pain points. Then ask yourself, ‘Does the franchise address some or all of those pain points? Does the model enhance your strengths?’”