What Should I Expect to Pay Up-Front in Business Coaching Franchise Fees?

What Should I Expect to Pay Up-Front in Business Coaching Franchise Fees?

If you’re considering a business coaching franchise, one important thing to know is how much you should expect to pay in up-front business coaching franchise fees.

Typically, the Franchisor will charge you licensing and training fees up-front. Depending on the circumstances, this can amount to $25,000 to $50,000 for the license, and an additional $10,000 to $25,000 for the training.

Royalty fees begin almost immediately without exception. Royalty fees can be a fixed amount or a percentage amount. Make sure you understand the difference AND the due date. It is normal to see royalty fees in the $1,000 to $1,800 range, paid monthly. Percentage-based royalties are MUCH better. If you see this, it’s usually a good sign that the franchisor actually believes that franchisees can make money using their business model.

There are other costs, too. Most franchisors will charge you a “brand-building fee” which is usually 2% to 5% of revenue. This fee is in addition to your royalty payments and is used (they say) to build the brand locally, in your region. Whether or not you will actually derive any benefit from this is another question entirely and worth asking existing franchisees about.

Depending on the business coaching franchise brand you buy, you might also be required to buy software, a website, and marketing and branding material, including letterhead, stationery, and the like.

So What Exactly Can You Expect in Business Coaching Franchise Fees?

It’s not uncommon for a first-year business coach in a franchise system to spend more than $100,000 to set up their business and then go through another $50,000 to $100,000 in working capital while you’re trying to get cash positive by landing your first few clients. Some franchise opportunities require less and some much more. From my years of experience of selling business coaching franchises for several of the more well-known franchise brands, I’ve seen total start-up costs ranging from a low of $100,000 to as much as $300,000, with median start-up costs averaging about $200,000, including working capital.

Total start-up costs range from a low of $100,000 to as much as $300,000, with median start-up costs averaging about $200,000, including working capital.
 

For the inside scoop on everything you need to know before buying a business coaching franchise, download our FREE ebook, The Business Coaching Franchise Buyer’s Guide.

Do Business Coaching Franchises Create Critical Mass?

Do Business Coaching Franchises Create Critical Mass?

One of the most common reasons business coaching franchisors cite when pitching prospects is that business coaching franchises create critical mass.

In other words, when you purchase a franchise, you’re “joining a movement,” they’ll say.

You’re contributing to massive market penetration.

And as the movement grows, your franchise will enjoy a broad customer base and economies of scale in advertising as well.

At least, that’s how the argument goes.

But Is It True?

There’s no doubt that business coaching is a growing industry.  More and more business leaders are turning to coaches to help them navigate the complex realities of running a successful enterprise.

Unfortunately, most business coaching franchises simply don’t have the necessary units to make that big an impact. There aren’t enough to say that business coaching franchises create critical mass.

In fact, with recent shifts in the marketplace, there has actually been a widespread downturn in the performance of business coaching franchisees…and as a result, market penetration is actually SHRINKING for most business coaching franchise brands, instead of the other way around!

Overall demand for business coaching continues to rise. But franchising is proving more and more that it is NOT a reliable model for the industry.

That’s unfortunate, because overall demand for business coaching continues to rise. But franchising is proving more and more that it is NOT a reliable model for the industry. As always: buyer beware.

For more insights on whether or not buying a business coaching franchise is right for you, download our FREE ebook, The Business Coaching Franchise Buyer’s Guide.

What Training Can You Expect from a Business Coaching Franchise?

What Training Can You Expect from a Business Coaching Franchise?

If you’re considering a business coaching franchise, the quality of their training probably has something to do with it. But what training can you expect from a business coaching franchise?

In the typical franchise, as soon as you sign the Franchise Agreement, you will be scheduled for the next available training date. This training is designed to deliver a lot of content and to justify the large franchise license fee that you just paid for. It’s usually one to two weeks of long and intense training, often taught by corporate instructors and occasionally by successful franchisees from the field.

You will be taught the history of the company and its position in the industry. You’ll spend some time learning how to interact with corporate headquarters and the franchisor’s policies and procedures. But the training is primarily designed to teach you the franchisor’s methods for running your franchise.

Remember, as a franchisee, you are not only representing yourself to the public, but you are also representing the franchisor. There is a vested interest for the franchisor to teach you how to properly represent their brand. Since the franchisor will continue to make money from your sales efforts, it is important for the franchisor to teach you about the products and services you sell and show you how to sell them effectively.

What Is the Training Experience Like?

For those readers who have large corporate experience, this training will be no different from what you  would expect if you were hired by a large corporation with one exception. You are paying for this training! So, participate in it as fully and unreservedly as possible. Who knows, you might end up saying later, as many franchisees have, that the initial training was actually the best and most valuable part of the entire experience, with the rest being a major disappointment.

You might end up saying later, as many franchisees have, that the initial training was actually the best and most valuable part of the entire experience, with the rest being a major disappointment.

Most franchisors hold training in a resort close by their headquarters. There are two reasons for this. First, it is in the franchisor’s best interest to get you into their headquarters as quickly as possible (if you haven’t already done so as part of your due diligence), where you can meet the staff and see the tangible side of the business you’ve just purchased.

The second reason is that if you are sitting in a fancy hotel overlooking the ocean or the mountains, you’ll equate the luxury with the quality of the training you’re receiving. It’s all part of the process to help you overcome any feelings of buyer’s remorse.

Once your training is complete, you will be handed over to some kind of manager who will handle your development from that day forward. These managers are usually employees or regional management types who have purchased the rights to manage entire territories, including the one you’re in. These regional managers are usually known as “Regional Developers” or “Master Licensees.”

From this point onward, the real work begins and your success is completely incumbent upon you. If you’ve made a wise investment, the people managing you will have a good track record of helping you get your business started. If not, you will be almost entirely on your own.

Want more insider tips and behind-the-scenes due dilligence hacks for purchasing a business coaching franchise? Check out our FREE ebook, The Business Coaching Franchise Buyer’s Guide.

Why Most Business Coaching Franchisors Charge a Monthly Royalty

Why Most Business Coaching Franchisors Charge a Monthly Royalty

Despite everything you might hear to the contrary, most business coaching franchisors charge a flat monthly royalty (as opposed to a percentage of revenue) for one simple reason: they’re determined to get paid even if you don’t.

Cynical sounding, but absolutely true, I assure you.

In the franchising world, it’s well-known and understood that good, reputable franchise systems survive and thrive based on a win-win business model. Their franchisees make money because the economics of the model make sense. Accordingly, the franchisor deserves to be paid a portion of the earnings. That’s why most reputable, quality franchise brands charge royalties based on a percentage of revenue generated.

Most reputable, quality franchise brands charge royalties based on a percentage of revenue generated.

But what about the business coaching franchise systems where the franchisee failure rate is well above 50%?

Well, business coaching franchisors have developed a great method of making money, even if their business model doesn’t work very well for the average franchisee. It’s called the flat monthly royalty! And because the majority of business coaching franchises have extremely high franchise failure rates, most business coaching franchisors charge a monthly royalty.

It doesn’t take a rocket scientist to realize that a flat monthly royalty of $1,000 to $1,800 is a WIN-LOSE deal. Win for the franchisor, lose for the franchisee.

What their sales reps tell you is that “the royalty fee is set at a flat rate so you’ll be motivated to get out and generate cash flow to become cash positive as quickly as possible.” But if you’re not motivated to be successful already, you’ll fail even faster with a cash burn rate like that staring you down each day.

Percentage-Based Royalties vs. Flat-Rate Royalties

Assuming a $1,500 monthly royalty, the only way you even break even with a flat rate royalty is if you bank $120,000 per year. That’s because $120,000 is the mathematical inflection point above which it pays better to be liable for a flat monthly royalty as opposed to a percentage, assuming a standard 15%.

Your sales reps will do everything they can to help you believe that you’re one of the few who will be on the far right side of the bell curve. And who knows, perhaps you will be. But I always tell my clients that when it comes to financials, you need to plan for the worst-case scenario and work for the best-case scenario.

Quite frankly, a lot of business coaching franchise prospects remind me of folks who play the slots in Las Vegas. You’ve seen them hunched over the slot machines, right? Most of them actually believe they’ll win big if they just keep playing long enough. “I’ll be the one to beat the odds!” they tell themselves.

Make no mistake. Flat monthly royalties are collected by the franchisor to make sure they get paid even if you don’t. This system benefits them, not you!

As you’re researching whether or not to buy a business coaching franchise, please look for options with a percentage-based royalty structure. This will incentivize them to work for their money instead of leaving you on your own to struggle. That’s the win-win approach.

For more important insights into conducting due diligence into business coaching franchises, please download our FREE ebook, The Business Coaching Franchise Buyers Guide.

Business Coaching Franchise Failure Rate

Business Coaching Franchise Failure Rate

Perhaps you’ve heard the statistic that only 5% of franchises fail within five years. But how does this compare to the business coaching franchise failure rate?

Before you buy this statistic hook, line, and sinker, keep in mind that the majority of franchises sold in the United States are what franchise expert Robert Purvin calls “blue chip” franchises–solid, respectable, enduring brands. This statistic originated in a study of those systems.

In contrast, most smaller franchises–including every one of the major business coaching franchises–are not in that category.

To put it bluntly, anyone who attempts to convince you to buy their business coaching franchise based on this statistic is twisting and misappropriating it.

Anyone who attempts to convince you to buy their business coaching franchise based on [the 5% franchise failure rate] statistic is twisting and misappropriating it.

After nearly two decades in the business coaching industry, I’ve seen business coaching franchise failure rates as high as 80 to 90%–something you probably haven’t heard from your franchisor’s sales rep! So before you buy into all the far-reaching claims about the success of franchises in general, make sure you investigate the particular franchise you’re considering…and ensure the numbers presented truly represent reality for that particular system.

And that means doing your due diligence.

Business Coaching Franchise Due Diligence

Before you make a huge investment in a business coaching franchise, consider the following due diligence steps:

1. If you’re talking with a business coaching franchise, evaluate their franchisees’ failure rate. See Section 2, Chapter 3, the third “checkbox” in the Business Coaching Franchise Buyer’s Due Diligence Checklist.

2. Pick up your own copy of Robert Purvin’s book, The Franchise Fraud: How To Protect Yourself Before And After You Invest, on Amazon. If you’re seriously considering a business coaching franchise, this book is definitely worth the read.

3. Grab our FREE ebook, The Business Coaching Franchise Buyer’s Guide! It’ll walk you step-by-step through everything you need to know before you invest.