opening dojo branch under sensei's name - appropriate fee/percentage?

[333kenshin]

Hi,
I recently moved back to my hometown near Los Angeles and am planning to opening a new dojo under the same name as my sensei's, but fully owned, incorporated, and operated by me - so basically a franchise.

He currently operates out of 1 full-time location. The new location is about 12 miles driving distance from the original so both he and some students who live between can visit from time to time, which will really help bootstrapping (an essential reason I'm starting up under his name and not my own).

What is a reasonable franchise fee + royalty percentage under such circumstances? He's not big on writing up contracts or logistics and such, so it's up to me to write up the franchise agreement and ensure I'm offering him numbers that are reasonable.

His baseline business health:

• he has 5 stars on both Google and Yelp and is willing to amend his website to include my location so I can piggyback off his SEO
• due to both the economy and personal losses, his business took a hit over the past year but was recovering nicely in 2018-2019 until COVID hit
• I have been assisting unpaid at his dojo for the past 2.5 years, re-learning the ropes of teaching (it's been 20 years since I stopped training with him when I left for college), and have in particular put in a lot of hours getting him through COVID

I'm considering a one-time franchise fee of $10K, with a recurring royalty of 5% or maybe 10% of gross revenues. The latter depends on whether marketing budget is covered by royalty or separate - at the moment he only spends $300/month on Yelp, but I'm thinking about going for a Spanish-language radio and/or YouTube buy to maximize impact per cost.

These numbers are based on what I've read is typical for "normal" franchises, but I'm wondering whether there are customs specific to karate dojos?

 

[Jaeimseu]

Does your sensei have a hugely successful school with name recognition that you need to pay for? Is he providing you with business systems for recruitment, retention, staff training, etc?


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[jobo]

Hi,
I recently moved back to my hometown near Los Angeles and am planning to opening a new dojo under the same name as my sensei's, but fully owned, incorporated, and operated by me - so basically a franchise.

He currently operates out of 1 full-time location. The new location is about 12 miles driving distance from the original so both he and some students who live between can visit from time to time, which will really help bootstrapping (an essential reason I'm starting up under his name and not my own).

What is a reasonable franchise fee + royalty percentage under such circumstances? He's not big on writing up contracts or logistics and such, so it's up to me to write up the franchise agreement and ensure I'm offering him numbers that are reasonable.

His baseline business health:

• he has 5 stars on both Google and Yelp and is willing to amend his website to include my location so I can piggyback off his SEO
• due to both the economy and personal losses, his business took a hit over the past year but was recovering nicely in 2018-2019 until COVID hit
• I have been assisting unpaid at his dojo for the past 2.5 years, re-learning the ropes of teaching (it's been 20 years since I stopped training with him when I left for college), and have in particular put in a lot of hours getting him through COVID

I'm considering a one-time franchise fee of $10K, with a recurring royalty of 5% or maybe 10% of gross revenues. The latter depends on whether marketing budget is covered by royalty or separate - at the moment he only spends $300/month on Yelp, but I'm thinking about going for a Spanish-language radio and/or YouTube buy to maximize impact per cost.

These numbers are based on what I've read is typical for "normal" franchises, but I'm wondering whether there are customs specific to karate dojos?

what are the projected earnings? I dont want to know, but i think you should

franchisers, will tell you and give you a bussness plan to success, coz they know what it takes and how it will reward you, that's part of what you pay the 10 grand for, their business expertise

your the one providing the expertise, such as it is, what's the 10 k for ?

as it is unless you can answer my question, no one can answer yours, it's either extremly generous or very mean or very generous with the 10k but mean with the % or the other way round,

who knows?

 

[hoshin1600]

This doest sound like a good idea to me at all. It sounds like the path to financial and emotional heart break.
The previous posts were correct a franchise is a system of business. When you purchase a franchise you are typically getting a proven system for marketing, computer systems, supply chain, a larger network for leads, billing and collection handled buy a third party, and a lot more that includes a recognizable brand name. You are purchasing an established path for success BUT..you are giving up control.
It sounds like your not getting anything but the ability to put a sign over the door saying Sensei Joe's martial arts. What happens when the arguments start over the fact that it's your investment but his name over the door?

 

[Grenadier]

It never hurts to ask your sensei what he would expect. You never know, he may want an unreasonable amount, or he may want virtually nothing at all.

I was in a similar situation several years ago when I branched out on my own. My sensei said I could be under the same banner, at no cost, since I had also put in "blood, sweat, and tears equity" when working for him, and I took him up on the offer.

I don't regret the decision at all.

 

[Graywalker]

10%

 

[Buka]

It's going to be different for every person, every organization, every new school owner and his teacher.

Whatever the case with you going forward, may you have a roof that doesn't leak, good luck and good students.

 

[Gerry Seymour]

This doest sound like a good idea to me at all. It sounds like the path to financial and emotional heart break.
The previous posts were correct a franchise is a system of business. When you purchase a franchise you are typically getting a proven system for marketing, computer systems, supply chain, a larger network for leads, billing and collection handled buy a third party, and a lot more that includes a recognizable brand name. You are purchasing an established path for success BUT..you are giving up control.
It sounds like your not getting anything but the ability to put a sign over the door saying Sensei Joe's martial arts. What happens when the arguments start over the fact that it's your investment but his name over the door?

This. To the OP: you're licensing, not franchising. You're just purchasing the right to use his school's name for marketing. You'll probably also get the benefit of some students visiting, and your sensei will get the benefit of being able to say membership in his school gets access to yours.

You probably should consider how this visiting should work. If someone is attending 4 classes a week at your school, but not paying anything to you (paying dues at your instructor's dojo), that could be a problem in the long run - and also in the other direction. That doesn't mean you don't ever want that to happen (having more students at first really helps get things started), but there might need to be some discussion of how to handle this. Perhaps just an agreement that if someone puts most of their time at one school, that's where they pay dues.

But unless the existing school name has huge marketing value, I'd argue strongly it's not worth paying a 5-figure fee for. There are benefits to both of you in the association, so it seems nearly even in that aspect. I think a modest yearly fee for the licensing would be sufficient.

 

[Flying Crane]

Why not simply open your own school with your bio listing who your teacher is. If he has a strong reputation locally, then people ought to recognize that if he says you are authorized to teach, then they can expect quality instruction from you. Then you are in control of the school and you reap the benefits or suffer the losses, but you aren’t saddled with paying your teacher for the right to put his name on your school, or an obligation to pay him a percentage of the income, which could be low or non-existent for a while as the school grows.

It takes time for any new business to become successful. Why put yourself even further behind the eight ball by creating these additional expenses for yourself? Unless there is some very tangible benefit from having your school set up as a branch of his, I can’t understand why you would deliberately manufacture these expenses for yourself.

 

[dvcochran]

This. To the OP: you're licensing, not franchising. You're just purchasing the right to use his school's name for marketing. You'll probably also get the benefit of some students visiting, and your sensei will get the benefit of being able to say membership in his school gets access to yours.

You probably should consider how this visiting should work. If someone is attending 4 classes a week at your school, but not paying anything to you (paying dues at your instructor's dojo), that could be a problem in the long run - and also in the other direction. That doesn't mean you don't ever want that to happen (having more students at first really helps get things started), but there might need to be some discussion of how to handle this. Perhaps just an agreement that if someone puts most of their time at one school, that's where they pay dues.

But unless the existing school name has huge marketing value, I'd argue strongly it's not worth paying a 5-figure fee for. There are benefits to both of you in the association, so it seems nearly even in that aspect. I think a modest yearly fee for the licensing would be sufficient.

To parrot off of this:
I agree what is described is not typical franchising since the new school will not receive the normal tools, marketing, and enhancements that come with franchising.
That said there should be strong benefits to using an established name, assuming it carries quality weight. A Lot needs to be talked out between the two school owners and a very strong and clear understanding of the relationship. Way too many options to mention here but a few would be what/if is the franchise/entitlement fee, is this a master/slave relationship or full equality, startup planning including pulling students from the parent school for a time, student sharing after startup, rent/utility sharing/shavings (i.e. using the same landlord and leveraging it), signage/document/uniform/logo standardization, billing service sharing/utilization.

This list should be very long, detailed, and locked down.

 

[333kenshin]

Lots of great material to think over, thanks all!

 

[Argus]

I'm considering a one-time franchise fee of $10K, with a recurring royalty of 5% or maybe 10% of gross revenues.

10% of gross revenue???
I could see, perhaps, some percentage of gross profit, but revenue? I don't know what's normal, and I don't know anything about running a dojo, but a basic understanding of business and accounting leads me to think that sounds like you're setting yourself up for a really tough time financially if you intend to hand over 10% of gross revenue even if you're in the red.