What's a Turnkey Franchise?

Posted on May 06, 2008 by Kel Sajid (CM)

FranChoice, Inc.

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You’ve probably heard the term “turnkey” many times and may have wondered what it means in terms of franchising. Turnkey basically refers to a franchise package so complete that everything you need to start the franchise will be done for you.

On the surface, this sounds like a great idea. You pay your fee and the franchisor researches the location, signs the lease, builds out the unit, supplies you with start-up inventory, finds and trains the staff, and orchestrates the grand opening. All you have to do is “turn the key” to open your new business.

Buyer Beware
There are plusses and minuses to a turnkey franchise. It could be a great advantage to you because of the work and aggravation it can save. It may also be an unnecessary expense if the package is overpriced for what it offers.

If the business you are looking at getting into says it is a turnkey opportunity, here are some ways to evaluate the value of the package offered.

1. Most franchisors offer only a partial turnkey program, doing some but not all of the items mentioned above. Make sure you understand what they will help you with and what tasks you’ll need to tackle yourself.
2. You should expect to pay a reasonable price for the labor involved in putting the package together, but not an outrageous price. If the price seems high, ask for a breakdown of the services provided.
3. Group purchasing power is a definite benefit of franchising. You can expect to get a good deal on the components needed for the business since you are taking advantage of the buying power of the chain. Make sure you have an understanding of the savings.
4. Ask the current franchisees about the value of the turnkey package. You’ll be calling them anyway as part of your due diligence so be sure to cover this topic thoroughly. Ask them if they feel they got a fair value for the turnkey package and if the process went as smoothly as they expected.
5. Finally, remember that you are paying a large up-front franchise fee and substantial ongoing royalty payments to this franchisor. These are accepted costs of a franchise business. You should not also have to pay a large markup above the actual costs to put the turnkey package together. Take the time to understand all facets of the process and the associated costs.

When the reverse is true
That being said, there are always exceptions to the rule. Some franchisors do not charge a royalty but actually make their profit by selling you the components of a franchise. For example, a smoothie franchise may sell you their proprietary kiosks and ingredients rather than charge you a royalty fee. The franchisor’s profit comes from the mark-up on the products they sell you.

Again, you should expect a fair price and the best way to determine if the price is fair is to ask the existing franchisees. Ask them if they are happy with the prices they are charged and if they shopped around before signing with the franchisor to see if this was the best deal they found.

The wave of the future
As franchising becomes more and more sophisticated, most franchisors offer at least partial turnkey features. They understand that it is to their benefit to provide their franchisees with every possible advantage to give them the best chance at success.

With retail franchise concepts, the franchisor is likely to provide the equipment and fixtures to the franchisee. The franchisee will then hire a local contractor to assemble and install everything. This balances the need for the consistent look and feel the franchisor wants with the same level of cost control for the franchisee.

In addition, the more the franchisor provides the franchisee in the way of training, marketing, materials, products, build-outs, etc., the more consistent the brand is from one location to the next. This also generates more revenue for the franchisee.

It still takes you to make it work
A true turnkey franchise is a company that supplies franchises with a business in a “condition ready for immediate use, occupation, or operation,” according to a dictionary definition. In most cases, a franchisor will do a lot to get you up and running but you will still need to take care of a number of start-up items yourself.

But whether a business is or isn’t a turnkey opportunity, or is a partial turnkey operation, don’t forget that there is still one element of the equation that a franchisor cannot provide – and that’s the drive, talent and determination of the franchisee to make the business successful. That is completely up to you!

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FranChoice is a national network of franchise consultants that provide free guidance and advice to qualified individuals in the United States searching for franchise opportunities that match their personal interests and financial qualifications.