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How to Franchise a Service Business

Franchising Your Service Business

Leveraging franchising and the franchise business model to expand and grow your mobile service based business.

From home service based businesses to eldercare, lawn-care, painting, flooring, tutoring and more, service-based businesses represent a fast-growing – and increasingly popular – market in the franchise space. Service based businesses are uniquely positioned to expand and grow through franchising and create great franchise investment opportunities featuring lower start-up costs, increased ROI potential, scalability, and growth opportunities.

If you're considering franchising, how to franchise your business, and if franchising is right for you, it's important to understand that franchising a service business is very different from franchising a retail or brick and mortar based business. Mobile and home service based business requires consideration of different franchise development strategies and, in this article, we’ll explore each of these franchise development strategies and ways to ensure that you franchise your service business the right way.

Before franchising your service business, you should:

  • Understand the advantages of franchising a service business
  • Evaluate whether you should franchise your service business
  • Understand key franchise development and growth strategies
  • Leverage your assets as a service-based brand

Understand the Advantages of Franchising a Service Business

When it comes to franchising, franchise buyers are always in the market for cost-efficient opportunities that provide an opportunity for growth – and the potential for a solid return on investment.

Because service-based businesses don’t require a physical location to operate, their financial advantages are easy to spot. A few benefits of service-based franchises include the following:

  • Lower franchisee startup costs. Unlike brick-and-mortar businesses, which often require expensive leases and costly build-outs to get up and running, service-based businesses offer lower initial investment costs and quicker startup times.

  • A broader selection of prospective franchise buyers. Lower startup costs allow service-based franchisors to reach a larger segment of franchise buyers with moderate levels of capital who might not have been able to invest in more costly brick-and-mortar opportunities.

  • Macroeconomic advantages. Because much of the wealth in the United States revolves around humans providing home-based services ranging from carpet cleaning to in-home care and more, service-based businesses play an important role – and fill an important need – in the economy.

Because of the unique factors that make service-based businesses attractive to franchisors and franchise buyers alike, franchising can be an excellent option for business owners looking to scale their brands.

Evaluate Whether You Should Franchise Your Service Business?

Much like brick-and-mortar businesses, making sure it’s the right time to franchise your service-based is critical for your future success as a franchisor. By evaluating your personal goals alongside your business’s metrics and other important factors, you can ensure that your franchise system will stand the test of time in a highly competitive – and highly regulated – industry.

Before franchising your service-based business, consider some of the following questions:

  • What are your personal goals?

  • What are your management team’s goals?

  • Do you have a long-term success strategy in place?

  • How do your sales compare to other franchisors in your industry?

  • What size territory do you operate in?

  • What do your operating profits look like?

  • What does your labor look like?

  • Do you have training systems in place?

  • Is your business model replicable?

  • What kinds of technology do you require to operate your business effectively?

  • Do you utilize a call center for customer service?

  • Do you have a strong marketing plan in place for your business?

In addition to evaluating your current business, it’s critical to evaluate competitors before franchising a service-based business. By making sure your brand is positioned competitively within your industry, you can ensure that your new franchise system will stand apart from the competition – and continue to grow and thrive over time.

Understand Key Franchise Development and Growth Strategies

Although franchising a business can seem daunting, making sure your business is franchised properly – that is, making sure it’s durable, legally compliant and positioned for success as early as possible – can make the process easier over the long run while freeing up time to focus on what matters most: developing a successful brand.

Developing a Competitive FDD

Before franchising your service-based business, aspiring franchisors should familiarize themselves with the documents to start a franchise – including the Franchise Disclosure Document (FDD). An important legal document, the Federal Trade Commission requires all franchisors to disclose their FDD to prospective franchisees at least 14 days before selling a franchise or accepting fees related to the sale of a franchise.

Because the FDD contains 23 mandatory disclosure items, it’s important to work with an attorney that specializes in franchising to ensure the document (and your new franchise system) complies with federal and state regulations. An experienced franchise attorney can also help ensure your FDD is positioned competitively within your market – something that can boost your brand’s attractiveness during the franchise sales process.

Item 19: Financial Performance Representations

When working with your attorney to develop your FDD, it’s important to remember that Item 19 should be approached differently for service-based franchises than for brick-and-mortar systems.

In particular, service-based franchisors should focus on the following key points when developing Item 19 of their FDD:

  • Territory size. Prospective franchise buyers should get a solid understanding of the size of the territory they’ll be operating in if they invest in your franchise system.

  • Territory structure. Franchisee candidates should be able to understand how territories are defined and structured within the franchise system as a whole.

After reviewing Item 19 of the FDD, prospective franchisees should have a strong sense of the ways territory impacts the financial performance of franchisees within your service-based franchise system. By organizing Item 19 around territories, you can position your FDD more competitively – and ideally attract more franchise buyers as a result.

Item 7: Estimated Initial Investment

Although many franchisors strive to make sure the initial investment disclosed in Item 7 of their FDD is as low as possible, it’s important to require enough capital for effective local marketing – even if it increases the amount of your franchisees’ initial investment.

Because local marketing is what drives business growth for service-based businesses, it’s critical to provide strong marketing support for new franchisees early on – and demonstrate how important local marketing is for achieving profitability. By making sure franchisees are set up for success, you can set the stage for strong validation as you scale your franchise system in the future.

Royalty Structures

Because franchisees are typically required to pay a specific royalty fee – for example, the greater of 6% of income or a set amount each week or month – it’s important to make sure the royalty structure described in Item 6 of the FDD is tailored to the needs of a service-based franchise.

Since quotas can increase the potential for legal consequences, service-based franchisors should consider building alternative royalty structures into their FDD instead. This might include increasing royalties over time, or basing a franchisee’s royalty fees on multiple territories while allowing them to give back underperforming territories in lieu of harsh penalties.

Technology and Customer Service

In addition to making sure your FDD is positioned competitively and tells an accurate story about the benefits of investing in your franchise system, it’s also important to make sure you have the right technology to support your franchisees in their daily operations. By using software and devices that make providing estimates easier – and utilizing call centers to ease the time-consuming process of customer service – service-based franchisors can ensure their franchise system is running efficiently and productively.

Leveraging Your Assets as a Service Based Brand

It’s important to remember that franchise growth – and success – takes time. In addition to working with a seasoned franchise attorney to ensure your franchise system is legally protected and compliant with federal and local regulations, developing a five-year franchise success plan is critical for increasing the odds of growth over the long term.

As a new franchisor, you should plan to spend your first two years in business focusing on limited, organic growth while over-supporting your first several franchisees. During years three to five, expect to focus on scaling your brand while perfecting your operations and increasing brand awareness.

New franchisors in service-based industries should also focus on making sure the advantages described in their brand story – and their FDD disclosures – are aligned with the actual income potential of their franchise offering. Although many serviced-based franchises don’t offer the same legacy-building potential as more costly brick-and-mortar franchises, they can offer the opportunity for franchisees to exit the corporate world while earning supplemental or replacement income.

Although franchising is a complex process, it’s important to remember that everything doesn’t have to be perfect on Day One of your journey. By continually evaluating and improving your operations and systems over time – and avoiding the temptation to over-expand – you can increase your chances of long-term growth and sustainability as a franchisor.

By leveraging your service-based brand’s unique assets and competitively positioning your FDD, you can increase your franchise sales potential while building a durable, sustainable franchise system – and making a difference in the lives of your franchisees and their families for years to come.

If you’re ready to franchise your service-based business, we’re here to help! Contact us or call (800) 976-4904 to learn about the legal and franchise development services we offer for new and emerging franchisors.

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