The term ‘franchising’ describes various business relationships – licensing, distributor and agency arrangements. Typically, a ‘franchise’ is someone else’s established business model packaged for you to take on yourself.
The estate agent franchises industry’s annual turnover in the UK amounts to £13.4 billion; from 929 brands; with 40,100 outlets employing 594,000. Most importantly for anyone in property considering opening a new business – 91 per cent franchised units operate profitably, including new businesses, according to the British Franchising Association (BFA); comparatively healthier than the 33 per cent of new businesses which do not make it past the first year.
The reasons for going down the franchise route are: someone else has already developed and tested the concept; immediate access to advertising campaigns and an established brand; access to specialist training and economies of scale as part of a large group.
Pros and cons
You get to be your own boss without missing out on the opportunities presented from being part of a much larger organisation. Sarah Walker, at Designs on Property, has been working with franchise businesses and says that within the franchise spectrum property is performing very well, with growth in lettings franchises several times that of the total national franchise growth figure.
“Franchising in property has been around since 1981, Winkworth was the first. Now there are more than 20 estate and letting agency franchises, 12 of which have BFA membership, demonstrating their professionalism and the viability of their business model,” says Sarah.
You have to pay a joining fee (between £10,000 and £20,000) and commit to a minimum five-year relationship with your franchisor, paying monthly ‘management service fees’ – usually a percentage of your turnover. Sarah says, “You need to decide whether the benefits outweigh those costs. There’s no guarantee of success, but for those who are prepared to work hard, follow the systems and strategies and make the best use of the resources and support available, the chances of developing a strong and profitable business are very good indeed.”
Here are a selection of franchisors in the property sector, what you need to know about them, what they offer and how to join.
“The Your Move brand is known and respected across the UK, but it’s still your business.” David Newnes, Your Move
Background: Winner of the Franchise of the Year at The Negotiator Awards 2012. Your Move is the UK’s largest estate agency and lettings brand in the UK and has more than 90 franchised branches operating across the country. Franchisees do not need estate agency experience. The business was set up in the late 1980s by General Accident and rebranded to its current title in 1999, after the General Accident and Commercial Union merger. Part of LSL Property Services plc.
Costs: A franchise fee from £25K plus VAT per office; the monthly management fee is eight per cent subject to a minimum of £800 per month based on gross turnover.
The total capital investment required varies dependent on factors such as size/location of premises, staffing levels, marketing plan etc, average is between £100-£150k which includes working capital. IT licences are charged on a monthly user basis. There are additional costs for lettings administration which varies by service type.
Payback: Core agency fee income from a broad range of mainstream and premium priced properties plus lettings income and sales of by-products.
They say: High street name above the door; the Your Move brand is known and respected across the UK but it’s still your business – your name will appear in the company name, on logos and on fascia. Franchisees can call upon the head office experience and they have invested heavily in front end technology – the website is the most visited estate agency website in the UK – and back office support technology.
”The uplift on conversion far outweighs the franchise fee.” James Trimble, Winkworth
Background: Original office opened in 1835. First estate agency to franchise. 149 branches in all, more than 50 in London. Around 95 per cent of franchisees were already estate agents of various backgrounds and experience.
Costs: £14,000 franchise fee with an ongoing royalty of 8 per cent. Other smaller fees may apply. Average total set up cost varies, typically for cold start offices; franchisee needs access to £100,000-£150,000.
Payback: Branches typically break even on a monthly basis after 6-8 months. By the middle of year business should have paid off the initial investment and be making a regular monthly profit.
They say: Winkworth offer a joined-up network and is one of the few firms that deal with the larger family houses across the country with roots in prime central London; so the brand sits comfortably alongside those large brand names that everybody knows. Winkworth makes regular approaches to independent firms where they believe there is opportunity to progress together. Franchising isn’t for everyone but for those who are looking for comprehensive support and a brand name as well as strength in numbers can and do benefit to the point that the uplift on conversion far outweighs the franchise fee… some as high as 156 per cent uplift.
Background: Were highly commended in the Negotiator Awards 2012 for Franchise of the Year, Innovator and Marketing categories. Founded in 1995 they now have 148 branches across the UK. The only specialist lettings franchise on the AIM market of the London Stock Exchange. Network turnover for last financial year was £22,200,141.54, returning a profit of around 25 per cent. Belvoir Property Management UK Turnover was 3,350,536 with a profit of £1,459,179. 98 per cent of franchisees are completely new to the industry.
Costs: £22,500 plus VAT and working capital. Franchise fee is 12 per cent of monthly turnover; most franchise owners will require a total investment of £100,000 to £135,000.
Payback: A new franchisee should aim to break even between months 12 to 18.
They say: By embracing the concept of franchising and being a proactive participant in the network, as well as taking full advantage of the outstanding support and training that is on offer from Central Office, Belvoir franchise owners have a high chance of succeeding when compared to independent traders. Because franchise owners don’t sell property or charge for providing specialist advice they can offer honest, unbiased advice and gain the trust of landlords.
Fine & Country
Background: Established in 2001, as a licensing structure; use of the brand is controlled, but the day to day business operation is determined by the licensee. 300 outlets worldwide, 201 in the UK.
Costs: No fee is charged to become a licensee. The licence fees, charged monthly, are valued individually based on the postcodes territories which form the licence. The fee is not tied to the turnover of the business so as not to penalise success. Licence fees can range from £1,000 per month up to £9,000; the average licence fee for a single licence territory is approximately £1,750 per month.
Payback: The top end of the market is very lucrative F&C say that licensees should look at the investment over a three year period. With breakeven likely between year 1 and 2 and profit between year 1 and 3. Most offices beat this target.
They say: The key is making the licensee understand that the upper-end market requires a more sophisticated and complete approach that utilises the many tools that are available to a Fine & Country licensee. Targeted property promotion; widespread editorial exposure and advertising; Creative, professional presentation; Park Lane office; award winning brand.
Background: Highly commended in Negotiator Awards 2012 Franchise of the Year. Established in 2009, creating a dramatically different working from home or non-High Street office, has 19 franchisees. HomeXperts Personal Agents get over 90 per cent of business from referrals by previous clients.
Costs: £13,995 plus VAT. Franchisee will also need a £6-7,000 marketing expenses budget to get their business off the ground. Approved by Lloyds TSB Bank who will lend as much as 70 per cent of the costs.
Payback: Most HomeXperts franchisees make a profit within their first year and move towards significant profit in years 2 and 3. They say: The way to succeed is to follow the model; they clearly demonstrate how well it works by existing franchisees’ experiences. The flexibility of HomeXperts enables franchisees to compete in their market by setting their own fees based on effective competitor analysis.
Martin & Co
Background: Established in 1986 with 187 branches nationwide. Last financial year: £3.5m turnover – £1.3m profit. Martin & Co. tends to attract ex estate agents buying into a lettings brand as well as agents that continue to trade in sales independently but select the Martin & Co brand for lettings.
Costs: Online agency: £16,500, Office: £18,500 to purchase with 9 per cent fee which provides: Business planning; training and development; marketing; IT; on-going support. Average total set up cost: Online £30,000, Office: £80,000
Payback: Generally, for online agents 17-18 month’s break-even, for offices it’s mid to end Year 2 break-even.
They say: The key message is, “Knowing your area of expertise inside out and delivering a professional, highly customer focused service is key to franchise success.” They offer a unique subscription model aimed at professional landlord investors that also gives sellers a choice in how they sell their property. Over the past decade, the private rental market has grown by 7.5 per cent compound per annum. Martin & Co has grown by 20 per cent compound.
Background: Established in 1992, 126 franchises. Turnover for last financial year: over £5.5m, fastest growing estate agency brand in the UK, acquired Bairstow Eves.
Costs: Franchise fee £15,000 plus VAT, ongoing the franchisee retains 90 per cent of income – subject to a minimum fee of £400 sales and £200 lettings per month (not payable for first 3 months of trading). No fee for existing business conversion. Provide a ‘walk away’ break clause after 12 months. Personal Agency Franchise (home based estate agency) – franchise fee £2,995 plus VAT, ongoing fees (after initial trading period) the franchisee retains 75 per cent of income, similar benefits to other options. Total costs (circa) for set up and trading into a positive cash flow position: New cold start branch £55,000 (no salaries), Personal Agent £17,000 (no salary).
Payback: On average a new cold start branch takes approximately 13 months to become self-supporting, while a Personal Agency takes around 10 months.
They say: Hunters’ strengths are in marketing, technology, training and communication – all of the areas where you really need to excel. They offer the most advanced estate agency package in the UK and are passionate about selling and letting properties throughout our network.
Background: Established for 25 years, seven offices in Hampshire, Cornwall, Devon, Dorset and Sussex and a growing number of affiliate offices – currently 20. Turnover for last financial year: just under £1.3 million. Network Affiliate Agents are independent agents wanting to use the Waterside Properties marketing platform, but retain their identity. Joining the Waterside Network means that their clients have their properties promoted not just on www.watersideproperties.com, but also through the other 20 Waterside Network offices in England and Wales. Waterside Properties also take extensive national magazine advertising, and exhibit at highprofile events such as the London and Southampton International Boat Shows.
Costs: £20,000, plus seven per cent of annual turnover. Typical average total set up cost in the region of £40,000 to 60,000.
Payback: A typical branch would expect to be in profit during the second year.
They say: Waterside’s unique position means an agent does not have direct competitor agents, as a typical new start office on the High Street would have. The waterfront is a great place to work… but it will not fall into your lap, you need to put the effort in.