Turnkey Franchise

You have 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 franchiser 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

There are advantages and disadvantages 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. Most franchisers 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 will need to tackle yourself.
You should expect to pay a reasonable cost 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.

Group purchasing power is a definite benefit of business 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.

Ask the current business franchisees about the value of the turnkey package. You will 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.

Finally, remember that you are paying a large upfront franchise fee and substantial ongoing royalty payments to this franchiser. 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 turkey package together. Take the time to understand all facets of the process and the associated costs.

There are always exceptions to the rule. Some franchisers 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 franchiser’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 franchiser to see if this was the best deal they found.

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 franchiser 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 is not a turnkey opportunity, or is a partial turnkey operation, do not forget that there is still one element of the equation that a franchiser cannot provide and that is the drive, talent and determination of the franchisee to make the business successful. That is completely up to you!