- October 14, 2019
- Posted by: eroconnew
- Category: General reading
School Franchise versus own School Brand
Erocon is always asked the question that whether to go for school franchise or own school brand. As a promoter there is alwaya a sense of belief that school franchise is a sure shot success formula, where school brand legacy and technology transfer will work wonders. We begin this interesting article with understanding that what are the primary reasons that prospective school promoter wishes to go for school franchise.
Industry Experience –
A new entrant in the field of education is worried about the technical know-how of school business. He wants a school franchise partner who can guide in the set up & operation strategy of initial years to ensure the right footing in the market.
Brand Positioning & Legacy –
Taking a premier school franchise ensures making the right noise at the entry level. Brand pull of school franchise will definitely be fruitful in getting the right jump start in the first year. People have high regard and acceptance of premier school franchise due to their prominence, visibility and legacy. School franchise brands like DPS, GD Goenka, Ryan, Poddar, DWPS, SRGS, NPS,Millennium, etc have pan India presence.
Hand Holding Process by the school franchise –
School promoters strongly believe that taking a premier school franchise on board will ease out their pre commissioning aspects such as recruitment, admin framework, academic planning, training, brand design development and execution, procurement advisory, school operations and lab set up, infrastructure planning. Also For helping them with post commissioning structure and management of school.
Rigorous Competition around the location –
When the stakes are high, school promoters feel that having a recognized brand name/ premier school franchise of India as a better decision or safer bet than having own a brand name.
Higher Fee Structure –
An important consideration for school promoters for taking up a premier school franchise is fixing of the fee structure. It is strongly believed that having a school franchise ensures fixing a higher fee structure for the catchment than compared to own school brand.
Let us now examine the proposition in detail whether a school franchise is a better decision or our own school brand or vice-versa.
Is taking a school franchise a sure shot formula?
Taking a school franchise certainly helps a new promoter to have the right beginning but is that the only reason for success. The answer is an absolute no. The schools which are popular have built a strong reputation in terms of their excellent teaching resource, academic delivery process, board results, infrastructure offering, sports facilities, co-curricular activities and all-round development of the child. School being purely a service oriented industry is propagated through strong word of the mouth network from happy parents and a 360 degree holistic offering. It takes at least 4-7 years to build a brand of repute and chain which gets you new admissions on a yearly basis. By introducing a premier school franchise and grand infrastructure, we can ensure great visibility and inquiry footfall along with higher admissions in the first year of operations but it is not necessary that the same impact of school franchise will be observed in the second year of operations. The admission in the second year of operation will purely be on the feedback basis that will form the basis of new admissions. Hence the impact of known school franchise is confined to only first year of operations and certainly not a sure shot formula for a successful school.
The cost and revenue sharing model of acquiring a school franchise
The cost being an important decision, a school franchise is not necessarily successful at all location. The one-time component in acquiring a school franchise ranges from 20 lakhs to 5 crores. Without taking the name, a particular brand in India has official one-time fee of 25 lakhs but the unaccounted money paid is in the tunes of 5 cr. Since the sum involved is huge, it has to be assessed that whether it is worth spending a fortune alone for only first year jump start number. Secondly even if you pay the brand premium, the long term impact of taking the school franchise is the royalty fee to be paid on yearly basis. The annual royalty fee payable for enjoying the brand rights is in the tunes of 8% to 18% per annum. This is taxing, when it comes to taking a school franchise. As a thumb rule, for a long term basis the average running expenses in a school post operational breakeven point is 65% of the annual receipt, where remaining 35% is divided as follows:
- 10% as the lease rent
- 10% as the EMI for construction
- 5% as redevelopment fund, staff welfare & capital expenses
- 10% as additional surplus to be utilized by the trust for further expansion, opening up the second school, acquiring land etc.
So financial revenue model in a Tier-3 city where fee structure is on the lower side, sharing such a huge revenue percentage may not be a viable option as promoter is not left with substantial money. Comparatively locations where fee structure is placed in mid-high segment, it may still be partially workable.
Secondly, the decision to take a school franchise is location and market specific as well. Some locations in the country are brand sensitive. Primarily Tier 2 areas and upcoming cosmopolitan cities that comprise of mid segment brand sensitive service segment having the exposure and will to subscribe to a good school brand. Tier 1 areas have the challenge of having lesser supply and high demand where the brand is secondary to get enrolment to a decent school offering where parents have excellent exposure and awareness while assessing staff, teachers, feedback, facilities, curriculum and previous track records is performed thoroughly. Tier 3 areas again have the limitation of not subscribing to very high fee structure as they are more price sensitive than brand sensitive, where facilities vs fee offering is the parameter. Any brand in Tier 3 at the right price and offering will make the required noise to attract favourable admission numbers.
Is it true that by taking a school franchise we get 100% technology transfer?
Remember that acquiring a school franchise is a 100% business model where revenue, profits and caching on the brand value is the key outcomes for having top school franchise brands. We come across multiple promoters who are promised an exceptional set-up and operational support for smooth operations of the school but it turns out that all support related exercise are one time in nature and there is complete absence of a concrete strategy to ensure 100% transfer. If that would have been the case, then every Delhi Public School Franchise or GD Goenka Franchise would have attracted a similar response and reputation in all markets. So ultimately, it’s the core team of the promoters, consultants, advisors, teaching resource, infrastructure, proper planning which delivers in the long run and not the brand name alone.
The aspect of continuous on ground support in project planning, academics planning, annual planning, pedagogy, recruitment, infrastructure planning and design development for brand, content, marketing, admissions and other aspects. In general, for 90% of the cases, the franchise does not help out the promoters with the minutia of the above-mentioned areas that are very important pre-commissioning and planning activities for school. They are more inclined towards being the reviewing and approval agency which they rightly should have a say as they concern for how their brand is being projected has to be understood. Hence an internal team is always required by the promoters to ensure that these execution works are carried out accordingly even when you opt for a school franchise. The expectation of school brands helping with management of school is also not met with most of the brands where their support is limited versus the recurring fee sharing component of 5-10% of the total fee receipt. However there are some brands in the market (prominent brands) who also have a management contract model where they lease out the land plus building (complete finished infrastructure) from the promoters while having a revenue sharing model. The prospective clients have to accordingly decide their level of interest and involvement they would want to keep in the future with their K-12 school ventures. That would set the tone for them to decide upon having own brand and if franchise then brand acquisition or brand management partners for the project.
What if after a running a successful school franchise I wish to open a second school?
A very interesting outcome of taking school franchise is that once a promoter establishes a school of repute over a period of 4-7 years and decides to open up a second school. The limitation is that school promoter even after a running a successful school franchise will not have its own brand identity. Secondly there will be a compulsion to start the second school with same franchise. Post running the school for 4-7 years, the promoters will have the right maturity to set-up the second school on their own. It will not be a right business decision to loose atleast 10% of revenue as royalty fee. The impact of this 10% will last into the system for at least 15 years or till the time of agreement.
What if I start with top school franchise brand and later on convert it into my own brand name?
The answer is that this will lead to sabotage. A school is the temple of learning and trust and an assumed smart move like this will not only spoil the feedback and reputation amongst the parents but will also have technical bottle-necks in terms of licenses. It’s not a straight line process to change the name of the school overnight as the process is questionable, lengthy, time consuming & reason specific. Thirdly every brand will have its own take on the curriculum and atleast till primary (upto class -V), a number of elements of curriculum is interlinked. Changing the brand name will lead to discontinuity of the learning process leading to multiple learning issues and gaps in the mind of students.
So What is the conclusion? Is school franchise better or starting your own brand name better?
The decision to take school franchise is more of a financial decision than quality oriented. We suggest that those in Tier-1 & few Tier-2 cities where promoters are simply looking to divert surplus of other business and wish to run this purely as a venture will still consider taking a school franchise, whereas majority of promoters start new schools in India with having their own school brands. The 20 years revenue scenario by taking a school franchise is not justified and just to protect the market entry, we incur a huge revenue loss over a fixed time period.
If the promoter is willing to oversee the project and is also willing to create a team of consultants, advisors, infrastructure, recruit great human resource and an positive intent to provide good quality education, then considering a school franchise should be out of questions. The minimum propagation time is 3-4 yrs but it shall reap long term benefits for both promoter and develop a quality oriented well differentiated school.
It is always advisable to have own brands as clients irrespective of either taking a brand or having low/no interest/no time will still be required to invest while spending a considerable amount of time to organize multiple aspects and execution works to set up a school. School Franchise for a known brand may facilitate initial year admissions but school projects being long term ventures along with word of mouth business require constant efforts towards maintaining high standards of education and establishing efficient management measures. No school could be successful unless all right steps are implemented, structured and sustained which happens when the promoter ensures taking right steps and has the will to take notice on regular basis. The efforts for its success is only because of continuous efforts by the existing management and having own brand empowers them to be able to get recognized for their efforts than the franchise being promoted.
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