Franchise ModelsFranchise Models

Franchise ModelsFranchise Models

Back to our goal…

58 New Franchises1,928 New Executives

Franchise ModelsFranchise Models

Every time we talk with a prospect, we all hear a variety of objections…

How can we have a solution to overcome every possible objection?

Hurdles to OvercomeHurdles to Overcome

• Monthly fees • Non-producing agents• Economic fears• Lack of national advertising• Lack of name/brand recognition in some

areas• Too many “extra” fees• Not having the capital for an Initial

Franchise Fee

Hurdles to OvercomeHurdles to Overcome

When it comes to Initial Franchise Fees…

To charge an IFF or not to charge an IFF…

Initial Franchise FeesInitial Franchise Fees

Here’s what REI does:• $10,000 for Address Only• $10,000-$25,000 for Protected Territory• Examples from the last year:– Benson, Arizona ($17k)– Bend, Oregon ($13k)– Eureka, California ($10k)

Initial Franchise FeesInitial Franchise Fees

Why Is It Important?:• More “skin in the game”• Not as likely to walk away• Investment creates a mindset to hit the

ground running• Gives you an idea of brokerage financial

stability

Initial Franchise FeesInitial Franchise Fees

When Does NO IFF Make Sense?:• Smaller Markets• Bigger Conversions– vs. Fee Relief

What To Do About the What To Do About the ObjectionsObjections

• We’ve listened to you and to franchise prospects over the last few years

• We believe there are four franchise fee models that will present at least one solution for the right prospects.

• We believe these franchise fee models are going to allow you to get in front of more prospects, sell more franchises and grow your existing franchises

Our Original ModelOur Original Model

Many things have changed in recent years including how people want to pay their royalty fees but the flat fee model is still executable in today’s real estate marketplace.

And, for the productive real estate company, it still makes the most financial sense.

Our Original ModelOur Original Model

Originally, we, as a company used to encourage our associates to go out and find their own tools and services.

Today, we know that for a brokerage to be run well from financial and systems standpoints, it needs a backend system to support it. It also needs tools and services to provide value.

Franchise Fee Model #1Franchise Fee Model #1

Flat Fee Model – • Royalty = $65*/Month/Executive • Office Fee = $300/Month for first office and

$100/Month for each subsequent office under the same contract (includes franchise and broker management system)

• Institutional Marketing = $25/Month/Executive

• Minimum Paid to REI is $400/Month

Amounts are based on what is paid to REI, not what the Region collects/charges.

Who Does Flat Fee Model Who Does Flat Fee Model Benefit?Benefit?

• Top Teams• Companies with a majority of

top producers• Long established, high

producing companies

Rules for Flat Fee ModelRules for Flat Fee Model

• All new franchisees on this fee model must use the franchise and brokerage management systems

• To switch to/from this model a franchisee must give RD/REI a 90 day notice

• Each Region is able to assess additional fees to the broker above and beyond REI fees

• No deviation from fees to REI

Alternative ModelsAlternative Models

The difference between now and when the company was originally founded is the need for alternative franchise fee models.

Franchise Fee Model #2Franchise Fee Model #2Gross Commission Income (GCI) Model – • Royalty = 2% of Individual GCI• Office Fee = $300/Month for first office and

$100/Month for each subsequent office under the same contract (includes franchise and broker management system)

• Institutional Marketing = $25/Month/Executive

• Minimum Paid to REI is $400/Month

Amounts are based on what is paid to REI, not what the Region collects/charges.

Who Does This GCI Model Who Does This GCI Model Benefit?Benefit?

• Areas which have been hit hard economically

• Low transaction count/per Executive• Companies which were once high

producing companies but have come upon hard times

• Companies who would prefer the traditional “pay as you produce” model

Rules for GCI ModelRules for GCI Model• Annual cap of $3,000/Executive to REI• Annual cap resets on franchise anniversary

date• Caps do not apply to IM fees• All new franchisees on this fee model must use

franchise and brokerage management systems• To switch to/from this model a franchisee must

give RD/REI a 90 day notice• Each Region is able to assess additional fees to

the broker above and beyond REI fees• No deviation from fees to REI

What if you have a What if you have a prospective company who prospective company who

has a few top producers and has a few top producers and a remainder of average a remainder of average

producers?producers?

Franchise Fee Model #3Franchise Fee Model #3Hybrid Model – • Royalty = $65/Month/Executive or 2% of

Individual GCI• Office Fee = $300/Month for first office and

$100/Month for each subsequent office under the same contract (includes franchise and broker management system)

• Institutional Marketing = $25/Executive/Month• Minimum Paid to REI is $400/Month

Amounts are based on what is paid to REI, not what the Region collects/charges.

Who Does Hybrid Model Who Does Hybrid Model Benefit?Benefit?

• Large companies who have a variety of agent production levels

• Small companies which have a top producing broker and several average producing agents

Rules for Hybrid ModelRules for Hybrid Model• All new franchisees on this fee model must use

franchise and brokerage management systems• For agents on GCI, annual cap to REI is

$3,000/Executive• Caps only apply to GCI portion of royalty fees and

reset on franchise anniversary date• To switch to/from this model a franchisee must

give RD/REI a 90 day notice• Each Region is able to assess additional fees to

the broker above and beyond REI fees• No deviation from fees to REI

Unlike the previous three Unlike the previous three fee models, this next one fee models, this next one

requires REI and the Region requires REI and the Region to partner together and split to partner together and split

all fees equally. all fees equally.

There is no ability to mark-There is no ability to mark-up this next fee model but…up this next fee model but…

““How would you like to own How would you like to own a Realty Executives a Realty Executives

franchise for $525/month?”franchise for $525/month?”

And, everything is includedAnd, everything is included

What if you could say to a prospect…

Franchise Fee Model #4Franchise Fee Model #4

All Inclusive Model (What You Need To Know In Advance)

• Royalty fees are due based on a sliding scale determined by how much a property was sold for by an Executive

• Royalty fees to REI & the Region cap at 12 transactions/Per Executive/Per Year

• $75 is automatically deducted from each royalty transaction fee before the remainder of the fee is split between REI and the Region for upgraded systems and tools (Mobile Connect, Web Connect, Executive Edge, Customer Connect)

• IM Fees are not based on Executive production or transactions, but paid monthly

Franchise Fee Model #4Franchise Fee Model #4All-Inclusive Model – • Office Fee = $525/Month for first office

and $100/Month for each subsequent office under the same contract (includes franchise, broker management system and a broker website)

• Here’s How the $525 Breaks Down = - $200 to franchise and broker management systems and broker website- $163 to REI - $163 to Region

Franchise Fee Model #4Franchise Fee Model #4All Inclusive Model –

• Institutional Marketing = $25/Executive/Month

You may charge an additional regional IM fee

Franchise Fee Model #4Franchise Fee Model #4All Inclusive Model – • Royalty =

– (< $99k): $195/Transaction - $75 = $60 to REI, $60 to Region

– ($100k-$499k): $295/Transaction - $75 = $110 to REI, $110 to Region

– ($500k-$999k): $395/Transaction - $75 = $160 to REI, $160 to Region

– ($1mil+): $495/Transaction - $75 = $210 to REI, $210 to Region

Who Does All Inclusive Model Who Does All Inclusive Model Benefit?Benefit?

• Small to Mid-Sized Brokerages• Brokers who want to provide

everything all inclusive to their agents

• Companies who need a minimal barrier to entry

• Companies with a lot of top producing agents

Rules for All Inclusive Rules for All Inclusive ModelModel

• Transaction fees decrease after 12/per Executive/year to $22/Transaction across the board

• Transaction caps reset on franchise anniversary date

• All franchisees on this fee model must use franchise and brokerage management systems

• To switch to/from this model a franchisee must give RD/REI a 90 day notice

• Caps do not apply to IM fee• No deviation from fees outlined

Overall Rules for All Overall Rules for All ModelsModels

• All new sales must be on one of the four Franchise Models discussed today; No Exceptions

• Upon renewal, a franchisee is able to switch to any of these four Franchise Models, but they are not required to

• If a franchisee wants to switch models mid-contract, he/she is able to choose one of the four Franchise Fee Models but must give 90 days notice. Fees due during that time are to be paid based on the existing Franchise Fee Model.

For All Four ModelsFor All Four Models

It would behoove you to collect the following information:

• Personal financial statements (statement of net worth)

• Company financial statements (including current balance sheets over the last two years)

• A rolling 12 month report of agent production by individual

• Credit report

Implementation of These Implementation of These ModelsModels

• You will have 60 days to make your post-effective amendment changes (this only applies to people in registered states. Non-registered states simply need to make the changes)

• REI will send each region a revised copy of our FDD so you may use it as a guide for making your own post-effective amendments

• Post-effective amendments for the REI FDD are in progress and will be done within the next 30 days

Implementation of These Implementation of These ModelsModels

• We streamlined the FDD this year so if you are using an old format you might have extra changes to make (we recommend you switch to the new format next year)

• Once your FDD changes have been made a copy needs to be sent to Jane Stegall or Bryan Brooks

Remember…

58 New Franchises

1,928 New Executives

…in 2012!

Questions?