Independent vs Stroud Homes – How does it stack up?
By James Stroud
Why would anyone buy a franchise?
Some friends of ours were married in February 2015 and we were invited to their wedding. Some of the relatives of the Bride stayed with us, one of which was a fellow builder. He was quite a frank sort of a fellow and as I was BBQing some steaks after the wedding he said to me “I don’t know why anyone would buy a franchise, I just don’t see the point of it.”
So I decided to write down some of the points I used to illustrate what we can offer here at Stroud Homes.
As this article ages, the theoretical figures shall stay the same. All figures are used for illustration purposes only, are not guaranteed for accuracy and should be confirmed individually by anyone forming a business plan.
“Well” I said, “Lets compare what they get from Stroud Homes vs What they would have to spend to start up a new home building business.”
Access to plans and BOQs
Plans
On day 1, when we flip the switch – after the agreement is signed – a new franchisee gets full access to over 50 fully documented design families with an average 4 facade options. The average cost to develop a plan is over $5,000 each. The cost to replace is at least $250k of hard costs (not considering time required to develop concepts and edit drafts). Time investment? At least 1 year.
| Item | Cost | Time |
|---|---|---|
| Plans | $250K | 1 year |
| Total | $250K | 1 year |
Bill of Quantities for the design range
Most of our home designs have a detailed BOQ inside of our estimating software, with individual BOQs for each facade in each option. Cost to replace? If a start-up builder could somehow instantly come up with the design range, they would need to have prices on hand for customers, (that is, if they hoped to compete with the local Stroud Homes builder). For each design, they would need to complete a take-off and create a bill of materials – it could take a dedicated estimator, working on nothing else, at least 6 months to complete the BOQs. What would be the cost of an estimator for 6 months? Lets take half an estimator’s annual salary – 90k/2 = 45k.
Where are we at now?
| Item | Cost | Time |
|---|---|---|
| Plans | $250K | 1 year |
| BOQ | $45K | 6 months |
| Total | $295K | 1.5 years |
Ok, that’s pretty good value right there, but we are only just getting going. Let’s move on to software…
Software
At Stroud Homes, we use the best software available on the market. We don’t try to “build our own” because, quite frankly, we think the software guys will be better at it than us. We’ve seen other building franchise groups build their own software and the result is a bit like when you try to build your own car – you know those dodgy go-karts people build in their sheds with whatever motor they happen to have? Imagine that vs any Holden or Ford.
Because we train you, you get top software for 24k less than everybody else. It is now becoming common for software companies to sell their product with training, or in other words REFUSE to sell software without a training package. The stuff has become that complex that it’s no longer practical to just “work it out yourself.” Two of the four software packages that make up the Stroud Homes system require training – one is 15k the other is 9k.
So if a start-up builder were to purchase the software necessary to compete with the local Stroud Homes builder, they’d pay the cost of the software PLUS 24k. Because we have long standing relationships with these software companies and they ‘ve seen us train our own franchisees – they provide us with the software without any training fee. Thus we can save our franchisees 24k right there.
Where are we at now?
| Item | Cost | Time |
|---|---|---|
| Plans | $250K | 1 year |
| BOQ | $45K | 6 months |
| Software training | $24K | varies |
| Total | $319K | 1.5 years |
Seed Data for your Workflow Software
When a start-up buys a copy of our workflow software, it’s empty. Sure we’ve already allowed for the training, but when the trainer leaves the start-up’s office the real work starts. When we give it to you as part of your Stroud Homes package, we copy the office with the most similar operation to yours and you have a system filled with relevant data.
What does this save you in time and money? To be fair you would have to allow for an acceleration of the business by at least 3 months over a raw start-up. How much money does this save you? Lets say you have 2 people spending about ¼ their time for those 3 months building the workflow, estimating and accounts systems. Let’s go with 15k as a very conservative estimate.
Where are we at now?
| Item | Cost | Time |
|---|---|---|
| Plans | $250K | 1 year |
| BOQ | $45K | 6 months |
| Software training | $24K | varies |
| Workflow building | $15K | 3 months |
| Total | $334K | 1.75 years |
Startup Marketing package
At Stroud Homes, we contribute 1/3 to the cost of the Stroud Homes start-up package* of any franchise. The new franchisee contributes ⅔. Our typical start-up package runs around 75k. This seems fair – it is your new business – we would expect the Stroud Homes contribution should be viewed as generous. We’re happy to invest in your new business so long as you’re happy to as well – we need to see our new franchisee understands the need to spend money to make money.
Bear in mind most of the list is made up of items you would need to secure as a start-up business anyway. Stroud Homes makes no profit whatsoever from the initial fees, quite the opposite actually! What does this start-up package include?
E-package
- Franchise Specific E-marketing establishment costs
- Data-center Server loaded with Stroud Homes system (4 separate software packages)
- 1 new laptop computer.
Marketing Materials
- Uniforms
- Umbrella
- hats
- staff polos
- jacket
- Stationery
- Branded
- Presentation Folders
- A3 Sales set in holders
- 1000 Business Cards for Franchisee
- Heaps of Brochures
- Branded Pens
- Transparencies set
- Signage
- Design posters A2
- Vehicle Branding
- Magnetic Car door Signs
- Site Signs s4 signs
- Credit for house and land package signs from s4
Training
- 12 Days onsite training
- 14 Days Franchise prototype training
- 12 Days support (every year – not just start-up)
Travel
- Accommodation per night
- Return Flight
- Car Rental
- Kilometers for return travel X trips
Marketing
- $10,000 Launch Marketing Allowance to fund Grand Opening event
- Other Associated Costs
- Franchise Area Development Costs
- Statistical analysis preparation
The value of the start-up package varies from area to area, mainly because of the travel component. It can also vary because a franchise may want to kick off with 3 staff (rather than the usual 1 staff) so more computer equipment and setup is required in that case.
For the purposes of our comparison, let’s use 80k and divide it into thirds. $80k/3= $26,666. Lets say $27k for ease of calculation. Stroud Homes pays $27k, franchisee pays $54k.
So, when a builder starts-up as a new home builder – would you agree they’d need most things on that start-up pack list? Everything except the training and travel, of course.
In other words, the start-up pack is money you would have had to spend anyway. So in other other words – the franchise is sort of free.
Where are we at now?
| Item | Cost | Time |
|---|---|---|
| Plans | $250K | 1 year |
| BOQ | $45K | 6 months |
| Software training | $24K | varies |
| Workflow building | $15K | 3 months |
| Stroud Homes marketing package | $27K | NA |
| Total | $361K | 1.75 years |
A note about graphic arts and design costs
You’ll notice on the list of items on the Stroud Homes Start-up Package that several items relate to marketing materials. Bear in mind we are allowing for the cost of the item only, not the design work. The brochures figure is paper and printing, the vehicle branding figure is the cost of having stickers applied to your vehicle.
If a builder were to start-up and hope to compete with the local Stroud Homes builder – they would need to design a great logo, tagline and choose a name. Only then can they move on to creating designs for brochures, for cars, for signs… as you can imagine, the list goes on and on.
Stroud Homes spent $30k on great graphic design in the very early days of the brand. Since then a further investment of more than 50k has been spent, but in the interests of comparing to a start-up situation let’s just allow for the 40k. If you’ve never hired a graphic artist, it can be a bitter pill to swallow when you’re paying much more for the designs than the brochures and other finished products.
Here again, we’ve made no allowance for the start-up builder’s time consumed in finding a graphic artist, editing designs etc.
Do customers appreciate good graphic arts? If you don’t know the answer to that question you really need help with marketing!
Where are we at now?
| Item | Cost | Time |
|---|---|---|
| Plans | $250K | 1 year |
| BOQ | $45K | 6 months |
| Software training | $24K | varies |
| Workflow building | $15K | 3 months |
| Stroud Homes marketing package | $27K | NA |
| Graphic arts | $40K | 3 months |
| Total | $401K | 2 years |
What about the fee and the marketing fund?
So you say, “well Stroud Homes should be making me a good deal because they will be after 4% of each home I build once we are up and running.” Really? Lets break that down a little:
First of all, it is not 4%, it is 3% and 1%.
3% goes to Stroud Homes and 1% goes to Marketing Fund contributions. You have to spend money on marketing whether you’re an independent start-up or otherwise. The only difference here is your money is combined with other builder’s money to get access to large scale marketing.
Let’s talk a bit more about this marketing fund. There are now 7 franchises building about 10 – 20 homes each month, thus contributing $25K – $50K /month into a marketing fund. When you start-up your business how many homes will you be building? That’s right – usually zero in the first couple months. In other words, the other builders in the group provide for marketing which gets your business off the ground – not a bad deal I reckon?
Franchise fees are built into the BOQ
So now let us get back to the actual 3% that Stroud Homes charges as an ongoing franchise fees.
Firstly, understand that these fees are dealt with in the BOQ. In the way that you have a plumber who looks after plumbing, a tiler that looks after tiling – Stroud Homes looks after your marketing INSIDE the BOQ.
You DO NOT, I repeat DO NOT need to deduct the 4% fees from your typical builders margin. We calculate builders margin ON TOP of our 3% franchise and 1% marketing fees and can demonstrate that our homes still represent great value to consumers.
Secondly, many of our incoming builders find they are buying materials at more than 3% better than before becoming part of Stroud Homes. We work to coordinate effective buying teams where ever we can, and usually generate a significant improvement to a builder’s buying power.
In my mind the ongoing franchise fees easily pay for themselves. How? – it’s all about working as a team. How many builders play touch footy or cricket after work? Do they play those games by themselves? No? Why then would we consider playing the new home building game all by ourselves?
How it all stacks up
So there have been a lot of numbers presented here, but if you’ve understood it you should get this: For about $54k of money that you’d have to spend anyway – you’re getting $401k of value and saving 1-2 years of time. In other words, if you chose to start up independently building new homes – you would be behind by $347k. How many homes would you need to build to create $347k in net profits and invest it into your business? How many years would this put you behind the builder in your area who does work in with a franchise group?
About having a business with your own name on it
Many builders tell us they feel going with a franchise group means giving up on their dream of owning a company which takes their name, and this is hard on their pride. I understand this and felt the same way, but in the end it seems more important to have a successful business without your name on it than an unsuccessful one with your name on it.
When we look at being behind by $347k, can we afford to pander to our pride? It eventually comes down to the question, are you happy to compete with another local builder who has all the tools Stroud Homes can offer?
Additional value from being part of a franchise business
You should also notice there are plenty of things left unconsidered for the purposes of simplicity, like the value of your own time which you would need to invest in finding, purchasing and developing the pieces needed to create a great new building company. In a real start-up situation those little things can add up to big things. Some of the ‘little things’ we haven’t quantified here include:
- We haven’t even got into the value that comes with being part of a great team of builders.
- We haven’t mentioned the training and business coaching services that a franchisor virtually provides.
- We haven’t mentioned the opportunity to compare your business’s performance against other similar businesses and have your team challenged to continually raise the bar, nor have we mentioned the value of learning from other builder’s mistakes, other builder’s innovations and other builder’s years of experience.
Raising the bar on the building industry
Franchising is raising the bar for the building industry in Australia. The number of franchise opportunities has exploded over the past 10 years, with some doing it well and others not so much. Yet the model continues to grow – because it works.
In another 10 years, I firmly believe the the question will not be whether to join a franchise – but which team to join.
Read More…
If this article sparked your interest then please take some time to read The Snake and the Mouse where we talk about overcoming the misconception that you can’t compete against the established building franchises.
If you’re considering joining the Stroud Team with your own home building franchise, you can talk to us or enquire online for a Franchise Information Pack.