FDD Talk: Bill Knight, VP of Franchise Development for Chem-Dry, Talks About the Carpet Cleaning Franchise’s 2012 FDD

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Chem-Dry Carpet Cleaning Featured on Franchise Chatter, speaking about the updates to the 2012 franchise disclosure document, or FDD

Franchise Chatter, a franchise industry blog, recently interviewed Chem-Dry’s Bill Knight about the company’s updated FDD for 2012. Here’s the article:

With more than 3,500 units, Chem-Dry is the world?s largest carpet cleaning franchise, and 2012 is proving to be an excellent year for the 35-year-old brand. Chem-Dry expects to add more than 120 locations by year?s end. Most of them will be east of the Rocky Mountains, where the company, which has been based in Logan, Utah, wants to build up its franchise base. (Another positive change: Chem-Dry?s parent company is moving its headquarters to Nashville, Tenn., a larger and more accessible city for eastern franchise prospects.)

Chem-Dry?s same-store sales numbers are up 3 percent from this time in 2011, and national account numbers are rising as a recovering economy loosens corporate spending. In this year?s FDD, Chem-Dry posted additional earnings information on franchisees and changed its equipment packages, franchise fees, financing options, and startup costs.

Bill Knight, Vice President for Franchise Development, joined Chem-Dry in 2009. With more than 10 years of experience, Bill brings a wealth of franchising knowledge to the Chem-Dry development team. He oversees the recruitment of new Chem-Dry franchisees and helps identify franchisees that are ready to expand into multi-unit businesses. His main objective is making sure Chem-Dry recruits the best people to represent the brand.

Franchise Chatter (FC):  What should someone researching Chem-Dry know about your FDD before reading it?

Bill Knight (BK):  Most franchise companies think of the Franchise Disclosure Document as a legal disclosure requirement. We view it as both a business overview document and a legal requirement and have taken great care to craft an FDD that is both easy to read and full of helpful, clearly written information.

FDDs are important ? any franchise you invest in should have clear financials, and a potential owner should be able to get a comfort level with the parent company. We?ve taken advantage of the FDD to highlight our business, from details on our franchise fee, to how our equipment packages have changed, to our startup package, and even our recently improved financing options for new franchise owners.

FC:  What are the biggest changes in your FDD from 2011 to 2012?

BK:  We?ve made a few this year. The most noticeable changes are slight increases to both our franchise fee and overall cost of our startup package. In addition, we?ve added even more attractive internal financing for new owners, making a Chem-Dry franchise one of the least expensive franchise opportunities, with a high return and long track record.

Our franchise fee increased to $15,000 this year, making it still one of the least expensive franchise fees in the industry. Previously, our franchise fee was $12,950.

For the past several years, we?ve been developing a highly trained call center based at our Logan, Utah, location. This year, we?ve made the use of our call center a requirement. The call center has an over 80 percent booking rate for inbound calls and a 96 percent booking rate for repeat customers, and franchisees who have used the call center have ramped up faster than franchisees who handled their own calls. We?ve found that many new franchise owners struggle to answer the phones and book jobs when they start out, either causing them to lose new jobs or hire a full time person to book calls. The call center is much less expensive, and since franchisees pay for results, it has become immensely popular in our system.

We?ve made some small increases to our startup costs package. Again, based on feedback from new owners and our operations team, we found that some items commonly used were not included in the previous package, so we?ve added them in this year. Most people won?t notice the change, but it gives new owners everything they need to get started.

Our very popular internal financing package got much better. Chem-Dry is one of the only franchise systems that a new franchisee with $10,000 can acquire and open that?s capable of generating the revenue we can. Our terms for repayment of the franchise note don?t start until several months, and just a couple of jobs will cover 100 percent of the note cost. It?s a great way for a new franchise owner to make good use of the capital they have and let the growth of the business pay for some of the ongoing costs. As always, we underwrite our loans internally, and they are easy to qualify for.

FC:  What can you tell us about Chem-Dry?s financial performance representations under Item 19?

BK:  We?ve improved our Item 19 Earnings Claims. Here is the new information:

Franchisees Grouped According to Revenue Performance:

1.  Top 1/3 of the System

• 95 Franchisees Owning 224 Franchises
• Annual Revenue Per Owner:  $404,080
• Number of Franchises Per Owner:  2.4
• Annual Revenue Per Franchise:  $171,373
• Cost of Solution:  4.7%
• Years Operating:  21.4

2.  Mid 1/3 of the System

• 95 Franchisees Owning 255 Franchises
• Annual Revenue Per Owner:  $216,402
• Number of Franchises Per Owner:  2.7
• Annual Revenue Per Franchise:  $80,620
• Cost of Solution:  5.8%
• Years Operating:  16.7

3.  Bottom 1/3 of the System

• 94 Franchisees Owning 227 Franchises
• Annual Revenue Per Owner:  $118,322
• Number of Franchises Per Owner:  2.4
• Annual Revenue Per Franchise:  $48,997
• Cost of Solution:  6.4%
• Years Operating:  16

4.  Systemwide Average

• 284 Franchisees Owning 706 Franchises
• Annual Revenue Per Owner:  $246,718
• Number of Franchises Per Owner:  2.5
• Annual Revenue Per Franchise:  $99,246
• Cost of Solution:  5.3%
• Years Operating:  18

Franchises Grouped According to Years in Operation:

1.  More Than 2 Years, But Less Than 5 Years

• 13 Franchisees Owning 27 Franchises
• Annual Revenue Per Owner:  $163,903
• Number of Franchises Per Owner:  2.1
• Annual Revenue Per Franchise:  $78,916
• Cost of Solution:  6.2%
• Years Operating:  3.3

2.  More Than 5 Years, But Less Than 10 Years

• 40 Franchisees Owning 86 Franchises
• Annual Revenue Per Owner:  $174,748
• Number of Franchises Per Owner:  2.2
• Annual Revenue Per Franchise:  $81,278
• Cost of Solution:  6.4%
• Years Operating:  7.4

3.  More Than 10 Years, But Less Than 20 Years

• 71 Franchisees Owning 148 Franchises
• Annual Revenue Per Owner:  $244,100
• Number of Franchises Per Owner:  2.1
• Annual Revenue Per Franchise:  $117,102
• Cost of Solution:  5.1%
• Years Operating:  15.1

4.  More Than 20 Years

• 160 Franchisees Owning 445 Franchises
• Annual Revenue Per Owner:  $272,601
• Number of Franchises Per Owner:  2.8
• Annual Revenue Per Franchise:  $98,014
• Cost of Solution:  5.2%
• Years Operating:  22.4

5.  Systemwide Average

• 284 Franchisees Owning 706 Franchises
• Annual Revenue Per Owner:  $246,718
• Number of Franchises Per Owner:  2.5
• Annual Revenue Per Franchise:  $99,246
• Cost of Solution:  5.3%
• Years Operating:  18

FC:  What can you tell us about your top performers who generate an average of $404,000 per year?

BK:  Our Item 19 disclosure this year breaks our franchisees into thirds based on revenue. Our top third run some really attractive businesses. These operators have built up highly successful franchises that do a lot of repeat business with a core group of 2,500 to 3,000 customers a year.

When anyone opens a new carpet cleaning business, they have to start building a customer list from scratch. In the first couple of years, new franchise owners spend a lot of time and resources on acquiring and delighting new customers and doing such a great job that they schedule the next cleaning in six months. Our top performers are more mature and have met their operational goals.

Margins increase at this point because it takes so little expense to maintain happy customers. I?d put the margins in our business over just about any other franchise opportunity I?m aware of.

FC:  How can interested parties get a copy of your FDD?

BK:  We are not very guarded about our FDD and want anyone interested in researching our carpet cleaning opportunity to have a copy. We?ve posted some of our Item 7 startup costs and Item 19 earnings claims on our website, www.chemdryfranchise.com. In addition, anyone who fills out a form for a Chem-Dry franchise report on our website and speaks with one of our franchise development directors will receive an electronic copy of our current FDD.