A residential construction-related franchise can be a great investment — for the right firm or manager. However, the price remodelers have to pay is more than just the purchase cost — it includes significant capital to buy the territory and set up the franchise as well as payment of royalties over the duration of the partnership.
But even more of a concern for remodelers is the loss of autonomy over their business. Remodelers who enter a franchise agreement must be willing to restrain the self-reliant entrepreneurial spirit they called on to start up and run their company.
Some franchisors compare the process of finding, evaluating, and joining a franchise to the process of dating, engagement, and marriage — with the franchise contract as a pre-nuptial agreement that spells out the responsibilities of both parties.
Indeed, the back and forth can be both fun and frightening, and the future not always clear. Fortunately, there are questions to ask and answer and processes to follow to make finding “the one” all the more successful.
Why Buy? Buying a franchise has many benefits. A franchisor provides a sophisticated analysis of the market for their product or service, proven systems, peer and company support, buying power, and upped resale value.
For construction industry novices, a franchise offers a map to success. “We're an expeditor,” says Mark Richardson of the Case Handyman Service franchise. “With our process and systems, we allow [franchisees] to accomplish in one to three years what it would take them 10 to 15 years on their own,” says the president of Bethesda, Md.–based Case.
Franchises can also open up a new market. Remodeler Rich Maile decided to buy a DreamMaker franchise because his high-end design/build company was losing touch with middle-market clients. “They are thrown back and forth between a small carpenter who does not have coordinated process and a high-end design/build remodeler,” Maile says. If he had used the existing design/build model of Cincinnati-based Maile Build Remodeling and Design to try to expand his market, it would have required more of an investment of his time.
Remodeler Stephen Brooks in Columbus, Ohio, one of the first Owens Corning Basement Finishing System franchisees, liked having the brand name association. “Everyone knows who that is. It's associated with insulation, but they think of it as a large company,” he says. “Instant reputability.”
Gary Stoltz, owner of a Kitchen Tune-Up franchise in Ft. Lauderdale, Fla., wanted to buy, build, and then sell a franchise, so he researched the return on investment. He found the rule of thumb to gauge the resale price of a franchise is 40% of the previous year's sales. “If I were to sell, I would put it on the market for $300,000. I paid a little over $30,000,” Stoltz says. “That's a pretty good return.”
Franchisors also cultivate partnerships with manufacturers. Case Handyman Services has a partnership with Velux to repair its skylights. Their franchisees also receive rebates from The Home Depot and save on credit card processing fees. Case has a full-time alliance coordinator who works on strategic partnerships.
Kitchen Tune-Up franchises purchase doors, cabinetry, lighting, and hardware products throughout the year and then receive rebates from manufacturers at an annual convention. President David Haglund says Kitchen Tune-Up's yearly royalties from franchises are 4.5% to 7% of their total sales, but with vendor rebates, the franchisee actually only ends up paying between 3% and 4%.
Jeff Sloan, vice president and general manager for Owens Corning Remodeling, says similar to peer review groups, franchises offer group and peer support. “Our job, when we see something that works or doesn't work, is to disseminate that information to the rest of the franchisees,” Sloan says.