Presented at August, 2013 conference

Alternative CF & Partnering Models

Peter Begin, Brian Nelson, Blair Koch

Conventional CF model

40% to CFFranchisee handles recruitment of members (2-step sale)Franchisee provides lots of oversight & training.Systems orientation – CFs must follow the system

Ideal Profile of Conventional CF

DISC profile – High C High S (someone who will follow a system)Possibly someone with HR/training/systems backgroundIncome needs are not terribly high (may have other sources)

“Rock Star CF” Model

60% to CF in year 1 (with potential to raise in year 2)

CF handles recruitment with assistance from franchisee

CF able to act independently once they “get it”

DISC profile – High D High I (someone who could have been a franchisee)Someone with consulting experience or practice; able to work w larger companiesIncome needs are high (highly motivated to drive his/her own growth)

Ideal Profile of Rock Star CF

Economics of the 2 Models - Revenue

Conventional CF Model

$595/mo.7 members (avg.)$4,165/mo./board

40% to CF = $1,666/mo

$20k annual to CF15% of gross to TAB*Earn $22.5k annually

“Rock Star CF” Model$795/mo.

7 members (avg.)$5,565/mo./board

60% to CF = $3,339/mo

$40k annual to CF15% of gross to TAB*Earn $16.7k annual

* Varies by contract, use a “marginal pricing approach – i.e. what is your net increase in cost to TAB - not avg cost

Retention rate / acquisition costs

Conventional CF Model

Retention rate = 65%

Acquisition cost per new member =

$1,500Acq’n cost/yr =

$3,675PLUS

My time doing marketing and

sales

“Rock Star CF” ModelRetention rate =

85%Acquisition cost per

new member = $500

Acq’n cost/yr = $525NOTE:

I spend very little time helping

recruit

Economics – Net Income comparison

Conventional CF Model

CF makes $20k annual

I earn $22.5k annually

- Acq’n cost $3.6k /yr

I earn $18.9k/year net

PLUSMy time doing marketing and sales, coaching

“Rock Star CF” ModelCF makes $40k

annual I earn $16.5k

annually - Acq’n cost $.5k /yr

I earn $16.0k/year net

NOTE:I spend very little

time recruiting, coaching

Pros/Cons of Both Models

Conventional CF ModelMake 20% more $

ButHave to do a lot more

work, have to have a strong sales and

CF oversight systems.

Good for High D/Cs

“Rock Star CF” ModelMake 20% less, ButDo a lot less work!Can attract higher

caliber membersCaution: can get burned;

lose control of their book

Good for High I/S

Conclusions

If you can find a “rock star”

You can create a (nearly) passive revenue streamYou raise the profile / brand for your franchiseBut be careful… stay connected to the members

Why Partners vs. CF

CFs don’t have skin in the game Different level of management

required for CF Higher acquisition cost & at times

higher turnover Partner model allows for growth &

sets up for exit

A Partner Model

Bring on up to 4 partners each owning 10%

70% to partner, 30% to business All partners work on acquisition,

alone & together Managing Partner provides lots of

oversight & training All partners follow the model &

contribute to ongoing improvements

Ideal Profile

MUST be able to sell People who could be franchisees on

their own Bringing in a variety of backgrounds

& expertise Won’t be “taking food off the table”

Economics per Partner

3 boards/8 members = 24 members*

$550 month (avg.) = $13,200 month Assume 60% of members get

additional hr of coaching at $150 = total monthly dues $15,360

70% to partner $10,752/month, $129,024/yr

30% to business $3,226/month, $38,707/yr

5 partners brings $193,536 to the business

* Does not include coaching only and additional consulting

Retention Rate/Acquisition Cost

Retention rate 63% - goal is 80%+ Community retention avg. 70.9%,

retention with 70+ members avg. 74.9% (2 territories)

Can see the rise/fall of retention as we bring on partners and they learn the business

“Cleaning house”, firing “poor” members

Acquisition cost is within the range of $1K/member and decreasing

Pros/Cons of CF/Partner

Pros Leveraged growth More skills & networks Beginning of exit in place Company and personal income increase

Cons Have co-owners to manage/facilitate Risk of partner not performing &

dealing w/ exit

Conclusion

If you want more growth w/out more territory…

If you want more brand awareness … If you want more company & personal

income … If you want to begin planning for your exit

… Stay connected with your partner(s) Stay connected with your members Know that it won’t be perfect but …

Selecting Your Business Model

Questions to Ask:

Model Questions to Ask

What do I want my Franchise to become in 5/10 years?

Is 100% commitment required by everyone? Do I want a consulting practice? If yes, what

services/items will I offer? How important is total number of members

to your goal? Is my business a TAB business with

consulting or a consulting business with TAB as an add on?

Model Questions to Ask

Do I enjoy/need monitoring/oversight or coach/mentor?

Do I enjoy team decision making or independent decision making most of the time?

Based on the above, what type of person would I need in my business?

Our Model

Formal ownership in the business. %’s can vary based on buy-in amount.

Managing partner retains 60% interest. Partnership is awarded, not based on

performance. We limited # of partners to 4. Partners buy-in using an external valuation

approach (costs dollars to be a partner). Ownership is formal and corporate structure

reflects this.

Our Model

Allowed for 401(k) investment to buy partnership interest in the business.

Salary structure for all partners. Medical/Benefit structure for all

partners Bonus structure for managing

members and obtaining new business.

Contract Facilitators are used for additional expansion. More like “Rock Star” CF model.

Monitoring and Management

Partnerships of all types require management. More teamwork - the better the partnership Critical Items

Metrics and statistics Common alignment on goals Open dialog and discussion

Dashboard applications and financial/operational metrics need to be shared with all.

Expect high retention from your partners. It should be equal to yours.

Economics

Be prepared for investment. Salary is a fixed cost to the business.

Just like any other business, talent is expensive.

Be prepared for learning curve. Can have negative impacts on ability to

draw cash from the business until ramp up is achieved.

Upside to the partnership comes after fixed cost is exceeded.

Some Final Thoughts

This model type requires a long term view.

Partnership and marriage have many similarities (and thankfully many differences ).

“Who” you work with defines how happy you are in your business. Pick partners you have fun with and compliment your long term goals.

Questions??