80% Recurring Revenue Franchise Business
A business model breakdown
Today I’m doing a business model breakdown on a franchise concept that has:
80% recurring revenue
Mon-Fri 8am to 5pm schedule
Low cost to start
No inventory or capex
Earn $100k+ per year
Can be operated "semi-absentee"
Residential House Cleaning
Don't worry -- you won't be cleaning houses. Franchisors don't want you to clean houses either.
In every franchise business, there are three distinct roles:
The "technician" - the person that performs the service. They clean the house, fix the car, cut the hair, paint the house, etc.
The "manager" - the bridge between the customers and technicians. They may estimate, sell the jobs, & schedule the technicians.
The “owner" - the conductor. They have the vision, create the culture, and put the right people in the right place.
What I like
Recurring Revenue - 70-90% of revenue is recurring bi-weekly. This creates for very stable & predictable business.
There are very few business models that have this strong of a recurring revenue model.
Family-Friendly Schedule - Monday to Friday, 8am to 5pm. There are no emergency calls, no late nights, or weekends (unless you choose). This gives you the flexibility that we're all looking for
Low Cost - $80k to $120k to start up. Some are as low as $45k. Depending on the franchise, this includes franchise fee, front-loading advertising costs, a few months of expenses & working capital.
Plus minimal inventory, no capex requirements, and low fixed expenses.
Operations Business - no cold calling, going to networking events, or writing big proposals. You spend all your marketing dollars on SEO to drive leads. In some cases, those web leads go to a franchisor-run call center that sets an appointment for your team to close.
Semi-Absentee - many franchise owners can run the business as a "semi-absentee" after having a good management team. Great if you desire the semi-absentee lifestyle.
Also great if you’re in expansion mode since there are usually some great value add opportunities when buying a business from a semi-absentee owner.
Differences Between Franchisors
While there are tons of cleaning franchises, there are a handful of nationally recognized brands that each have their uniqueness. The biggest differentiator is around control:
Full control: maids to be uniform, drive company-owned & branded cars. Must use specific cleaning products. Must have an office space with laundry hookups. The owner must be involved in the day-to-day operations.
No control: no uniforms, drive personal vehicles, wide range of cleaning products, home-based, and owner can be a fully-remote operator.
Technology - one brand surveys customers after each clean and dynamically pays their maids for performance based on the results
Territory availability - some are sold out in major markets
How much can you make?
Sales: There's a wide range of performance disclosed in the FDDs Some average $600-700k / year. Others are doing over $1 million on average.
Let's model out $800,000 in annual sales.
Gross Profit Margins: Profit after paying direct labor & supplies. The GP across all brands is the roughly the same @ 50%
On $400k in sales, you'll have $400k left over to pay operating expenses
Operating Expenses: royalty & advertising 12 to 13%, manager salary, credit card fees, rent, insurance, bookkeeping, possibly vehicle expenses, software, and other miscellaneous costs
All-in I'd target 15% net margin $800k x 15% = $120k year net profit
A good return considering the low investment and potential only to dedicate 10-20 hours per week after everything is up & going.
From here, you could be satisfied with the cash flow or look to buy another territory to increase the cash flow.
A couple of big franchisees are doing over $3M/year sales, netting around $550k
3 Big Challenges:
#1 People. Your ability to hire & retain great cleaners is the biggest challenge in the business. You have to be good at creating a culture that people want to be a part of.
One that acknowledges & rewards hard work. If people are only in it for the pay, you will lose to a competitor offering $1 more hour. There's gotta be more than that
#2 Competition. The house cleaning business is highly fragmented and heavily saturated. The name of the game is marketing. You have to be at the top of the local search results.
#3 Scalability. You can dominate your local market and make a great living running a cleaning business. It would not be easy to scale across the country.
Find The Right Franchise For You
With almost 3,000 franchises out there, it can be overwhelming to find a franchise on your own. I work 1-1 with a limited number of people per month to help them find the right franchise based on their individual goals.
Please reply if you want to learn more about the process.
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