Salons Suites Franchising - It's worse than you think
Let’s get real about salon suites franchising, and understand where they make their money.
The salon suites concept can be very profitable with a low operator’s time commitment, but you basically have two choices to setting up your salon suites business: Franchise or Independent. The franchise field is a crowded one, with at least ten active franchises operating in the US, with more on the way: Sola, Phenix, Salons by JC, A Suite Salon, Salon Boutique, My Salon Suite, Salon Lofts, Studio Salons, Salon Spa Suites, Salon Plaza, etc.
As we have said before, the salon suites franchise model is a GREAT one if you’re the franchisor (it’s a “money for nothing” model), which is why more and more independent operators are trying to turn themselves into a franchise. All of them are attempting to establish a unique position in the industry (“We’re the high-end franchise!”, “We have a concierge!”, “We have a celebrity founder (of our own making)!”, etc.
Let’s look at the franchise model and how franchises are motivated financially. In other words, how do they make their money?
Franchise fees – This is the most obvious profit center for the franchises, and, depending on which one you’re dealing with and how self-important or desperate they are, franchise fee range from about $45k- to $70k. And what do you get for the franchise fee? You get the right to put the franchise’s name on your business, and that’s about it. (See here for a short summary of why the franchise’s name on your business means nothing.) After paying the franchise fee, you still have to do everything to develop the business: site acquisition analysis and costs, security deposits, legal counsel and CPA advice, design and space optimization, architectural and engineering plans, construction, marketing, etc. It’s a common occurrence for SCG to receive calls from franchisees that have paid their franchise fee but need help with a variety of things because their franchise is not helping them (“I can’t even get them to return our phone calls” is a common complaint.) So in summary, the franchise fee is your entry fee to get in the game, your ante.
Development – This is a huge profit center for franchises. A careful read of the franchise agreement reveals that you are required to go through the franchise for a great many tasks during development, even though there may be much more cost-effective alternatives. For example, franchises require that the facility follow a very strict look and feel design process (basically the cookie cutter look), which means that you have to provide certain cabinetry in the suites, a specific door for the suites, or even a specific ceiling tile in the common areas, and all MUST be obtained through the franchise. As you’ll see, this is VERY profitable for the franchise. Let’s look at cabinets as an example. Anyone familiar with commercial cabinetry (which we are) can readily identify the value of cabinets required for each suite as roughly $800. The franchise provides these cabinets to the operator for…are you sitting down?...about $14,000.00 per suite. (No that is not a typo). And that is just one profit center for a typical franchise. Add on their mandated doors, ceilings, fixtures, furnishings etc. (all of which typically must be purchased from or through the franchise), and you can see why some franchises are averaging about $190/square foot to develop the facility. (We spoke with a franchisee recently that told us their invoice from the franchise for their non-construction furnishings and fixtures alone was $340k(!). We hope that came with a foot massage or something.)
Royalties – This can vary between about 5%-7% of your gross revenue, which can translate to $40k - $60k per year. There are many franchise operators getting very good gross revenue streams, but many are running on thin margins.
Review – The franchise’s interests are not aligned with the operator’s, which is profitability.
Note that the profit centers detailed above have NOTHING to do with the operator’s net revenue (profit). Franchise fee? No. Development? Nope. Ongoing royalties? Nope and nope. The franchise’s interest is in carving up territory and selling franchises, overseeing development, and collecting royalties. The operator's bottom line does not matter.
All those that think this is good for the franchisee, please raise your hand. Hmmm...the only hand I see raised is from a gullible franchisee sitting there in the back...