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Does Franchising Work in Home Services Businesses?

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Does Franchising Work in Home Services Businesses?

Does Franchising Work in Home Services Businesses?

Franchising would appear to be an ideal model for the home-services professions in South Africa – such as plumbers, electricians and garden services. Yet outside of retail, it struggles.

In a country where homeowners are nervous about letting strangers into their homes and would welcome in reputable brand names, recognised franchise home-services trades should predominate. On top of that, these technically-obsessed tradespeople would benefit from higher levels of professionalism, systems and more exit opportunities to sell their businesses.

Home-services have been touted for some years now as one of the growth sectors of franchising, and indeed it is rapidly expanding in many countries. Jim’s Franchising in Australia boasts more than 4 000 franchisees in all manner of home services. The concept clearly works – so why not in South Africa? A number of home-services companies in South Africa tried the franchising route without success. Successful South African home-services firms may be missing the franchising opportunity.

The Advantages

In countries such as Australia, the US and UK, franchising plays a major role in plumbing – yet not in South Africa. Only two plumbing franchise businesses – Drain Surgeon (approximately 14 outlets) and Drainmen (about nine) – are registered with plumbing association IOPSA, though Amandla Plumbing is listed as an intermediate member of the Franchising Association SA, and a number of others list themselves online. On Tap, Waterways and Cape Plumbing and Bathrooms are franchises in the retail space.

Many home-services franchises internationally enable a single electrician or plumber to be branded and to leverage on the brand-building of the franchisor. At the same time, home-services businesses have recognised the need to become more professional and business orientated, evolving to more modern business practices. Marketing, branding, technology, web presence and overall business practices all have to be components of a modern business – even a one-man electrician operation. A modern electrician or plumbing business requires the owner-manager to not only be a licensed tradesperson, but the business models also require someone with communication skills at the helm. This can be a difficult element of the trade space in that many of the experienced personnel in the trades are not necessarily good at communicating with others.

Favouring franchising is the sharp increase in specialisation of services. This focus on market segments allows for better, more effective businesses within the subcategories of solar installations, heat pumps, leak detection and more, as consumers always choose to work with specialists as opposed to generalists.

The cost to invest in a franchise will vary based on market demographics, the size, and scope of your existing business size, and individual start-up requirements, including the size of the territory you purchase, discounts you qualify for, number of service vehicles you currently have in operation and tools and equipment you already own.

There was a spike in plumbing and electrical franchise businesses in South Africa related to solar water heating systems and established on the back of the Eskom rebate programme. There were approximately 145 such businesses established at the height of the rebate programme in 2009/10, many being franchises, but 80% of them closed once the rebate scheme ended, and today there are only four or five major players left, and not franchised.

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What Franchisees Should Expect From a Home Services Franchise

The one-man plumber or electrician must see the value in a franchise – otherwise what is he paying his fee for? In the past, franchisors have tried to make excessive profit, charging as much as 20% royalties while offering very little in return. There’s got to be real value to the small tradesperson, not just a brand name, but for instance: a manual on how to run the business; lines of credit with suppliers; technical support as and when needed; branding; advertising; business know-how; forms and documents; and assistance with administration. These are the things that take up the time of a one-man plumber, electrician or horticulturalist and prevent him from producing revenue.

With those things there’s real value for the franchisee in the franchising model – provided the franchisor isn’t also charging a fortune for it. There isn’t 20% margin in these businesses to pay in royalties. However, franchising – done well at a value-for-money cost – can be a massive game-changer.  Another game-changer could be the involvement of manufacturers, e.g. paint manufacturers, as they could add technical expertise, products at favourable pricing and most importantly, brand equity.

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