What is a Turnkey Franchise?
You’ve
probably heard the term “turnkey” many times and may have
wondered what it means in terms of franchising. Turnkey basically
refers to a franchise package so complete that everything you need to
start the franchise will be done for you.
On
the surface, this sounds like a great idea. You pay your fee and the
franchisor researches the location, signs the lease, builds out the
unit, supplies you with start-up inventory, finds and trains the
staff, and orchestrates the grand opening. All you have to do is
“turn the key” to open your new business.
Buyer Beware
There
are plusses and minuses to a turnkey franchise. It could be a great
advantage to you because of the work and aggravation it can save. It
may also be an unnecessary expense if the package is overpriced for
what it offers.
If
the business you are looking at getting into says it is a turnkey
opportunity, here are some ways to evaluate the value of the package
offered.
- Most
franchisors offer only a partial turnkey program, doing some but not
all of the items mentioned above. Make sure you understand what they
will help you with and what tasks you’ll need to tackle
yourself.
- You
should expect to pay a reasonable price for the labor involved in
putting the package together, but not an outrageous price. If the
price seems high, ask for a breakdown of the services provided.
- Group
purchasing power is a definite benefit of franchising. You can
expect to get a good deal on the components needed for the business
since you are taking advantage of the buying power of the chain.
Make sure you have an understanding of the savings.
- Ask
the current franchisees about the value of the turnkey package.
You’ll be calling them anyway as part of your due diligence so
be sure to cover this topic thoroughly. Ask them if they feel they
got a fair value for the turnkey package and if the process went as
smoothly as they expected.
- Finally,
remember that you are paying a large up-front franchise fee and
substantial ongoing royalty payments to this franchisor. These are
accepted costs of a franchise business. You should not also have to
pay a large markup above the actual costs to put the turnkey package
together. Take the time to understand all facets of the process and
the associated costs.
When
the reverse is true
That
being said, there are always exceptions to the rule. Some franchisors
do not charge a royalty but actually make their profit by selling you
the components of a franchise. For example, a smoothie franchise may
sell you their proprietary kiosks and ingredients rather than charge
you a royalty fee. The franchisor’s profit comes from the
mark-up on the products they sell you.
Again,
you should expect a fair price and the best way to determine if the
price is fair is to ask the existing franchisees. Ask them if they
are happy with the prices they are charged and if they shopped around
before signing with the franchisor to see if this was the best deal
they found.
The
wave of the future
As
franchising becomes more and more sophisticated, most franchisors
offer at least partial turnkey features. They understand that it is
to their benefit to provide their franchisees with every possible
advantage to give them the best chance at success.
With
retail franchise concepts, the franchisor is likely to provide the
equipment and fixtures to the franchisee. The franchisee will then
hire a local contractor to assemble and install everything. This
balances the need for the consistent look and feel the franchisor
wants with the same level of cost control for the franchisee.
In
addition, the more the franchisor provides the franchisee in the way
of training, marketing, materials, products, build-outs, etc., the
more consistent the brand is from one location to the next. This also
generates more revenue for the franchisee.
It
still takes you to make it work
A
true turnkey franchise is a company that supplies franchises with a
business in a “condition ready for immediate use, occupation,
or operation,” according to a dictionary definition. In most
cases, a franchisor will do a lot to get you up and running but you
will still need to take care of a number of start-up items yourself.
But
whether a business is or isn’t a turnkey opportunity, or is a
partial turnkey operation, don’t forget that there is still one
element of the equation that a franchisor cannot provide – and
that’s the drive, talent and determination of the franchisee to
make the business successful. That is completely up to you!
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