Presented at August, 2013 conference Alternative CF & Partnering Models Peter Begin, Brian Nelson, Blair Koch

Conventional CF model 40% to CF Franchisee handles recruitment of members (2-step sale) Franchisee provides lots of oversight & training. Systems orientation – CFs must follow the system

Ideal Profile of Conventional CF DISC profile – High C High S (someone who will follow a system) Possibly someone with HR/training/systems background Income needs are not terribly high (may have other sources)

“Rock Star CF” Model 60% to CF in year 1 (with potential to raise in year 2) CF handles recruitment with assistance from franchisee CF able to act independently once they “get it”

DISC profile – High D High I (someone who could have been a franchisee) Someone with consulting experience or practice; able to work w larger companies Income needs are high (highly motivated to drive his/her own growth) Ideal Profile of Rock Star CF

Economics of the 2 Models - Revenue Conventional CF Model $595/mo. 7 members (avg.) $4,165/mo./board 40% to CF = $1,666/mo $20k annual to CF 15% of gross to TAB* Earn $22.5k annually “Rock Star CF” Model $795/mo. 7 members (avg.) $5,565/mo./board 60% to CF = $3,339/mo $40k annual to CF 15% of gross to TAB* Earn $16.7k annual * Varies by contract, use a “marginal pricing approach – i.e. what is your net increase in cost to TAB - not avg cost

Retention rate / acquisition costs Conventional CF Model Retention rate = 65% Acquisition cost per new member = $1,500 Acq’n cost/yr = $3,675 PLUS My time doing marketing and sales “Rock Star CF” Model Retention rate = 85% Acquisition cost per new member = $500 Acq’n cost/yr = $525 NOTE: I spend very little time helping recruit

Economics – Net Income comparison Conventional CF Model CF makes $20k annual I earn $22.5k annually -Acq’n cost $3.6k /yr I earn $18.9k/year net PLUS My time doing marketing and sales, coaching “Rock Star CF” Model CF makes $40k annual I earn $16.5k annually -Acq’n cost $.5k /yr I earn $16.0k/year net NOTE: I spend very little time recruiting, coaching

Pros/Cons of Both Models Conventional CF Model Make 20% more $ But Have to do a lot more work, have to have a strong sales and CF oversight systems. Good for High D/Cs “Rock Star CF” Model Make 20% less, But Do a lot less work! Can attract higher caliber members Caution: can get burned; lose control of their book Good for High I/S

Conclusions If you can find a “rock star” You can create a (nearly) passive revenue stream You raise the profile / brand for your franchise But be careful… stay connected to the members

Why Partners vs. CF  CFs don’t have skin in the game  Different level of management required for CF  Higher acquisition cost & at times higher turnover  Partner model allows for growth & sets up for exit

A Partner Model  Bring on up to 4 partners each owning 10%  70% to partner, 30% to business  All partners work on acquisition, alone & together  Managing Partner provides lots of oversight & training  All partners follow the model & contribute to ongoing improvements

Ideal Profile  MUST be able to sell  People who could be franchisees on their own  Bringing in a variety of backgrounds & expertise  Won’t be “taking food off the table”

Economics per Partner  3 boards/8 members = 24 members*  $550 month (avg.) = $13,200 month  Assume 60% of members get additional hr of coaching at $150 = total monthly dues $15,360  70% to partner $10,752/month, $129,024/yr  30% to business $3,226/month, $38,707/yr  5 partners brings $193,536 to the business * Does not include coaching only and additional consulting

Retention Rate/Acquisition Cost  Retention rate 63% - goal is 80%+  Community retention avg. 70.9%, retention with 70+ members avg. 74.9% (2 territories)  Can see the rise/fall of retention as we bring on partners and they learn the business  “Cleaning house”, firing “poor” members  Acquisition cost is within the range of $1K/member and decreasing

Pros/Cons of CF/Partner  Pros  Leveraged growth  More skills & networks  Beginning of exit in place  Company and personal income increase  Cons  Have co-owners to manage/facilitate  Risk of partner not performing & dealing w/ exit

Conclusion  If you want more growth w/out more territory…  If you want more brand awareness …  If you want more company & personal income …  If you want to begin planning for your exit …  Stay connected with your partner(s)  Stay connected with your members  Know that it won’t be perfect but …

Selecting Your Business Model Questions to Ask:

Model Questions to Ask  What do I want my Franchise to become in 5/10 years?  Is 100% commitment required by everyone?  Do I want a consulting practice? If yes, what services/items will I offer?  How important is total number of members to your goal?  Is my business a TAB business with consulting or a consulting business with TAB as an add on?

Model Questions to Ask  Do I enjoy/need monitoring/oversight or coach/mentor?  Do I enjoy team decision making or independent decision making most of the time?  Based on the above, what type of person would I need in my business?

Our Model  Formal ownership in the business. %’s can vary based on buy-in amount.  Managing partner retains 60% interest.  Partnership is awarded, not based on performance.  We limited # of partners to 4.  Partners buy-in using an external valuation approach (costs dollars to be a partner).  Ownership is formal and corporate structure reflects this.

Our Model  Allowed for 401(k) investment to buy partnership interest in the business.  Salary structure for all partners.  Medical/Benefit structure for all partners  Bonus structure for managing members and obtaining new business.  Contract Facilitators are used for additional expansion. More like “Rock Star” CF model.

Monitoring and Management  Partnerships of all types require management.  More teamwork - the better the partnership  Critical Items  Metrics and statistics  Common alignment on goals  Open dialog and discussion  Dashboard applications and financial/operational metrics need to be shared with all.  Expect high retention from your partners. It should be equal to yours.

Economics  Be prepared for investment. Salary is a fixed cost to the business.  Just like any other business, talent is expensive.  Be prepared for learning curve.  Can have negative impacts on ability to draw cash from the business until ramp up is achieved.  Upside to the partnership comes after fixed cost is exceeded.

Some Final Thoughts  This model type requires a long term view.  Partnership and marriage have many similarities (and thankfully many differences ).  “Who” you work with defines how happy you are in your business. Pick partners you have fun with and compliment your long term goals.

Questions??