Franchising in the Australian home building industry has been around for more than 30 years and makes up around 1.7% of the market. 

You would be familiar with the biggest brands nationally – G.J. Gardner Homes, Stroud Homes and Cavalier Homes. 

Smaller up and coming brands include Wattle Court, Green Homes, Integrity New Homes, and Abode New Homes. Stonewood Homes, a large franchised builder in NZ, has recently made the move to Australia, starting with 2 offices. 

So how does it work? 

The Model

1. The Franchisor 

• The Franchisor is typically the head office that has developed the brand and the systems that are being licenced. It provides use of the brand, along with the systems, a software platform and business management processes to franchisees in specific areas. 

2. The Franchisee

• The Franchisee is a licenced builder, who has either purchased a new exclusive franchise area, or has bought the business off the previous franchisee in that area. 

This builder adopts the branding and operations manual of the Franchisor and runs their business trading as the brand in that location, i.e. Stroud Homes Northern Gold Coast. 

The Franchisor rarely builds homes themselves, although some groups run a partial Franchise model, partial corporate builder (i.e. Dixon Homes with 11 Franchisees). 

Fees

• To initially purchase a franchise for a particular area, there is an upfront fee ranging from $25,000 – $150,000. 
• From there, the Franchisee will pay the Franchisor an ongoing franchise fee, usually 4% – 5% of the contract value of each build, and generally payable on slab. 
• In some Franchisors, 1% of this total fee will go exclusively to a marketing fund, which must be spent on marketing efforts for the group. 

For an average $500,000 build contract, that’s a $20,000 fee to the Franchisor. 

What do Franchisees get? 

It varies significantly between different Franchise brands. Good Franchisors should provide to franchisees: 

• Detailed assistance with setting up your business under the brand in that location – including a documented process for the entire workflow from when you receive a lead, through to subbie and supplier management, pre-construction, estimating, scheduling, and handover processes.
• Consistent marketing and lead generation, building consumer trust in the brand name, developing campaigns and online lead generation. 
• Some brands have proprietary software that will run the operations of the builder – notably G.J. Gardner Homes and Stroud Homes – others use off-the-shelf systems. 
• Supplier and procurement benefits, leveraging group buying power and volume to provide sharp pricing and rebates with quality suppliers that align with the brand’s position in the market. 
• Assistance with understanding finances and cash-flow management as well as State Licencing requirements, WHS obligations, and managing their contracts. 
• A close knit community among the fellow builders. Quite often the most valuable part of a Franchise group is the sharing with and learning from fellow builders, forming bonds and supporting each other. Regular events and conferences in exotic locations are common. 
• Good Franchisors will become a coach to the Franchisee, assisting them in growing their business, allowing them to get off-site and build a sustainable lifestyle around the business. They will then assist with exit and succession planning. 

Conditions

• Typically the franchisee will only be able to market and build for homes within the suburbs in their exclusive franchise area (i.e. northern Gold Coast). Some groups allow the business to build anywhere, however only market within their exclusive area. 
• The builder must follow the brand guidelines and operations manuals of the Franchisor. 
• Most brands are looking to grow quickly and take market share in each region. Hence there is typically contractual requirements around monthly build numbers or revenue targets up to a % of market share in the franchise area.
• Many Franchisors will also require the builder to work only on the franchised business, and not have involvement in any other business interests. 

What if it doesn’t work out? 

• Franchise Agreements are typically 5 years in length, at which point the franchisee should have an option to renew for another 5 years, provided they haven’t been in breach of the agreement. 
• If the Franchisee no longer wants to be a part of the brand, the Franchise can not renew their agreement in 5 years, or negotiate with the Franchisor an exit prior to that. 

Taking on a franchise as a builder is like taking on a business partner (who you give 4 – 5% of your revenue to). 

If it isn’t the right fit, or if either side doesn’t hold up their end of the bargain, it can be a terribly painful experience for all involved. 

That being said, done well, franchising can be an excellent platform for a builder who is seeking growth and wants to scale to $20m+ quickly and have the support to do so. 

With a raft of new Franchise brands hitting the market in Australia, I’d recommend any builders looking at one to undertake detailed due diligence to understand exactly who the Franchisor’s have in their team, what their experience is, and how they will assist you. 

Author: Peter Love

Pete was the General Manager of one of Australia’s largest home builders for six years, before starting his own business as a buyers’ advocate, building over 200 homes in five years across South East Queensland and working with over 20 builders to deliver them. Across this time he has seen most facets of the industry, the good, the bad, and the beautiful.