Homevestors of America Franchise Profile - Case Study Example

HomeVestors of America Franchise Profile Franchising as a business concept has helped many companies pursue strategies and markets that would have otherwise been impossible to reach. On this perspective, the practice involves situations where different entrepreneurs own the right to use a parent company’s brand in exchange for fees and royalties. On this perspective, modern franchise practices incorporate many business aspects, especially in the real estate segment, providing cheaper avenues of expansion for the company. Indeed, HomeVestors Company is a business engaged in the real estates, whose strategies in franchising have made it very profitable in the industry. How the business was created Kenneth D’Angelo created HomeVestors Company, with the main aim being to utilize franchised services as the route towards sustainable real estate business. Indeed, the franchising operations of the company began in 1996, where the company’s initial venture involved the buying of worn out houses, repairing and selling them at a profit. On this note, the company embarks on buying houses of people who are moving due to job transfers, retirements or shifts and renovating the houses to be resold to potential buyers who may want to buy the houses. To date, the company has purchased more than 45000 homes in the United States since it began operations, and its high-ranking services will continue to boost its operations and create better avenues for franchising. Pros and Cons of franchising by the parent company One of the most profound benefits of franchising operations is the fact that the capital requirements are much lower when opening new departmental stores or branches. Indeed, a company seeking to expand its operations through franchising incurs fewer costs, as opposed to committing funds and get new stalls (Campbell, and Lafili 93). On this note, the business creates independent owners who assume all the costs associated with operations, only leaving fewer responsibilities to the parent company. Further, the parent company experiences increased rates of expansion, mainly due to the facts that the costs of such a venture are reduced. As opposed to commitment of huge amounts of cash in budgets as capital requirements to open up new businesses or branches, companies under franchise can reopen many times the number of stores or businesses with the same amount of capital, which may facilitate rapid expansion even into the untapped markets in the industry. Looking at the disadvantages of such an idea to the parent company, it is evident that setting up branches in diverse geographical locations may require increased variation of products. It is important to note that the tastes of customers differ between geographic regions, and it would present marketing challenges to the parent company to venture in such a company, as well as remodeling of products to match the tastes (Rey 50). Further, the parent company is unable to control the quality of products that reach because transfer of business to the franchises creates a boundary of control over the operations and services offered. Inexperienced franchisees may offer substandard services that may affect negatively on the profits and performance of the parent company (Webster 82). Marketing strategies for HomeVestors The company has embarked on various models of marketing to survive competition in the industry. Indeed, outdoor advertising has worked for the company in terms of popularizing its brands as well as attracting new partners and customers. Indeed, such ideas are the products of a carefully selected team of marketers, who specialize in market research to identify lucrative local and international markets that the company can explore. In 2006, the company noted its shift towards rebranding their products, so that the customers may realize that the company not only buys worn out houses, but also buys those that are not ugly (Huggins 63). Indeed, these messages were relayed on gigantic billboards, which have the ability to communicate the message to the desired clientele. Further, the company utilizes marketing research to identify what the industry needs to offer to the public in terms of housing products. This was the highlight of the 2007 speech by Mark Hagen, the chief marketing officer, after the introduction of new sets of billboards for the year, which sought to rebrand their products, and reintroduce its various new products to the customers (Zeidman, and Muth 56). On the other hand, the company focused to reach most of its prospective customers through the introduction of its magazine in 2009. Indeed, this was a marketing strategy designed to reach the wider society, including politicians, businesspeople and the public. On this note, the company has also embarked on various TV and radio advertising sessions, which are geared towards giving testimonies of what the company has done to those customers who have utilized its services. These advertising spots have been placed in such a way that they fit with the market conditions, advertising what the market needs at a particular time. Importance of the strategies The use of the outdoor marketing techniques by HomeVestors is indeed lucrative and fits the real estate industry where it operates. On this note, any marketing strategies by such a company should be geared towards public advertisement of its services to new clients, which has been the focus of HomeVestors. Indeed, the implementation of such strategies needs careful testing as well as research, to ensure that they meet the target market; strategies, which have helped the company, introduce ideas of value to suit the requirements of the industry, as well as stay ahead of the competition (Webster 39). Advertising arrangements for the franchisees Apart from the fact that the company commits quite a huge amount of money towards the advertising campaigns of its operations, there are integrated plans to incorporate the advertising even to the franchisees. On this platform, the franchisee is required to contribute a minimum of $225 to the parent company’s marketing fund to ensure that the company has enough resources for the company. In addition, the parent company requires that the franchisee sets apart at least $3000 for advertising in its regions of operation every month. In perspective, analysts point to this practice as the reason for the company’s marketing success in terms of the franchisee perspective, to the extent that the monthly advertising promotions by the franchisees assist to boost the popularity of the products, and the company can derive better sales and new customers in those areas of operation (Huggins 61). Operations management Companies pursuing success devise strategies in all areas of their operations. Indeed, the procurement operations of HomeVestors are demand-driven, focusing on what the market wants and supplying the required quantities. In this perspective, the company has continued to use the market conditions to strategies on its pricing as well as the quantity of houses to buy and sell at given times. Indeed, the real estate market is often volatile, and dependent on economic conditions such as booms and recessions (Campbell, and Lafili 71). Indeed, this strategy helps the company to keep abreast with the consumers’ demands and handle the changes in the market, this has been the driver towards sustained revenues and the management of this chain moves smoothly between the franchisees and the parent company In addition, the procurement and supply chain management of HomeVestors is facilitated by the optimization of designs and innovation, which reduce the product cycle and increase efficiency of the chain. In this respect, the product development techniques in the company are lucrative and profitable, to the extent that they bridge the gap between acquisition of old houses and resale of the renovated houses to other willing buyers. This has been the hallmark of strategies for the company, enabling it to survive the competition and retain its wide following of customers. On the other hand, integrated business planning has also contributed to the success of the company’s supply chain management. Indeed, HomeVestors connects its operations with its corporate business strategies, which have assisted the company to manage its budgets in a way that reduces the costs of the supply chain (Zeidman, and Muth 65). On this platform, it has also enabled the forecasting of the forces of demand and supply, as well as improved the performance of their products. Pros and Cons of the strategies The strategies are important because they assist reduce costs incurred due to planned supplies and effective management of the chain. In addition, the company’s strategies help in prediction of market trends, which is very important in the formulation of strategic goals. Finally, the strategies above help the company to monitor performance in real time, adjust to changes and improve the performance of existing strategies (Luxenberg 102). The disadvantage of the systems is owed to the huge amounts of resources needed to keep the supply chain operations and monitor operations (Huggins 63). These may include cash, human expertise and time that may be very costly to acquire and sustain. The costs of the franchise set up HomeVestors Company requires an initial franchise fee of $ 50000 for all prospective partners. Indeed, this fee incorporates the costs incurred in training, as well as the services that may be offered as support and the selection of the site of operation. The franchise fee offered by HomeVestors only covers the above named costs, but does not include the licensing costs that may be incurred during the process. The licensing fees are paid by the franchisee and the company does not compensate on this (Zeidman, and Muth 49). The company only offers purchases and rehab financial assistance to the franchisees, and in addition requires that prospective candidates possess a minimum of $ 80300 worth of liquid cash. Of this minimum requirement, more that $50000 is required to be cash, while the rest may be in any form, including marketable securities, as long as they offer a short-term source of financing for the company. The royalty fees paid to the parent are scheduled monthly, and are paid due to the addition of the transaction fees as a percentage of the total sales and are 8%. Indeed, the company requires a fixed payment of $250 each month as development services fee, in addition to a pre-determined percentage of the sales at the beginning of the contract as development fees for the whole period. In addition, the company may require the payment of other miscellaneous expenses depending on the agreement, including computers, small wares and other equipments needed. The breakeven point of the operations is determined annually, depending on the total volume of sales accomplished, as well as the costs incurred for the operations. Initial Franchise Fee = $50,000 Monthly Service Fee (Royalties) = 8% of Gross Sales The payment schedule: Type of Expenditure Amount Payment When Due Initial Franchise Fee  $50,000 Method: Lump Sum Before franchisee’s Branch opens or when Development Agreement signed Development Services Fee  Varies Method: Lump Sum Within 30 days of receipt of invoice Miscellaneous $10000-$ 20000 Method: Lump sum At the end of the month Development Fees  Varies Method: Lump Sum At the time of signing Development Agreement  Break Even Point: Assuming the per capita net sales of $5000, the average per-unit revenue is $46, the fixed costs are approximately $150,000 per month, which includes the full payroll, royalties and utilities, we may be interested to analyze the figures as below: Break Even Point is when Profit = 0, so Revenue = Costs Costs = Fixed Costs + Variable Costs Costs = ($178,240) + (.225) X the number of houses sold Revenue = ($5000 per house sold) (46 units sold in the year) (.775) X = 44 units sold in the year Human Resource Management The success of the business is highly attributed to a variety of factors, chiefly being how it equips its team of franchisees with skills and knowledge. In the inception stages, the franchises have to undergo a training for five days, on which the basic principles of the business inculcate into them, as well as training for success in the industry. In addition, there are supplemental training sessions offered by the company on a regular basis, including seminars and training camps. There are also annual conventions for the franchisees at HomeVestors, and other summits organized by the company (Birkeland 29). Most of these comprehensive training programs have been geared towards inculcating important investment skills into the franchisees that will help them manage their business profitably. Further, the training is geared towards relaying of important information in the valuation of property or buildings, which are the focus of the business. In addition, the comprehensive regular trainings as well as free updates provide franchises, with avenues for learning keep abreast with the changes in the industry. Advantages and disadvantages of corporate training The corporate training enhances adherence to the rules of good business practices in the company. Further, training increases the knowledge base within the company, which is a recipe for innovations and better performance (Barkoff, and Selden 45). On the other hand, training is costly and comprehensive programs may use too much resource in the implementation. Further, training programs may expose various key strategies in the company, increasing its vulnerability to competitors in the market. In conclusion, franchising has offered better opportunities for businesses to expand faster and profitably. Indeed, it is an important strategy, if coupled with the best skills in supply chain management as well as trained franchises as in the example above. HomeVestors will therefore continue to use franchising in the predictable future. Works Cited Barkoff, Rupert M., and Andrew C. Selden. Fundamentals of Franchising. Chicago: American Bar Association, Forum on Franchising, 2003. Print. Birkeland, Peter M. Franchising Dreams: the Lure of Entrepreneurship in America. Chicago: University of Chicago Press, 2007. Print. Campbell, Dennis, and Louis Lafili. Distributorships, Agency, and Franchising in an International Arena: Europe, the United States, Japan, and Latin America. Deventer: Kluwer Law and Taxation Publishers, 1999. Print. Huggins, Chris. Franchising and Financing Practices in the Contemporary World. Washington, D.C.: Office of Advocacy, U.S. Small Business Administration, 2007. Print. Luxenberg, Stan C. Roadside Empires: How the Chains Franchised America. New York, N.Y.: Viking, 2005. Print. Rey, Gregory S. Homevestors of America: Franchise Disclosure Document. Dallas, Tex: HomeVestors of America, 2000. Print. Webster, Bryce. The Insider's Guide to Franchising. New York, NY: AMACOM, 2006. Print. Zeidman, Philip F., and Hanns P. Muth. Franchising. Jersey, Channel Islands: Eastern Pub. Ltd, 2009. Print. Read More