The Maids Franchise Startup Failure
Detailed Account Of Franchise Startup Failure
The approach to growing revenue involves signing customers identified each month using marketing approaches for regular maid service. The concept is similar to putting money into a savings account. Total revenue is composed of Regular Maid Service (RMS) revenue plus Occasional Maid Service (OMS) revenue. Each month OMS is a direct function of the effectiveness of the marketing program but it only happens once. Obviously, once an RMS customer has been obtained, keeping that customer is highly desirable. In our case, we are losing them as fast as we get them and cannot stop the loss process. We are confident that quality is as it should be because Marlene became our Field Manager starting in November 2013. She personally talks to customers and checks work quality. During the last week of January 2014 while inspecting a home, a customer told Marlene “I almost skipped service this week to spend the money on Botox but when I thought about how good I feel after the girls finish with my home I decided the Botox could wait." That is a pretty strong indicator that our quality is where it should be. Another RMS loss variable is customer interaction. Marlene personally meets every customer when we perform a First Time Clean. She literally has a photographic memory so once she meets customers she is able to call them by name going forward. I really don’t think anything further can be done to eliminate any negative contribution.
If quality and customer familiarity is as it should be, what is causing RMS loss? Based on my personal discussions with customers when providing quotes, I believe our business is a “commodity” in our marketing area. People only care about costs. What you tell them about quality of the clean you deliver doesn’t mean anything to most. During November, we lowered our prices back to the point used when we opened and have not seen any positive contribution. I do not think that growing a customer base in our marketing area is possible using prices that would allow us to be profitable. Put another way, we have been trying to accomplish the impossible.
When we visit performance during the early part of our experience, results are enlightening. We opened for business during September of 2012 but did not start accumulating data on weekly revenue until the first of 2013. In the plot below, robust growth is evident until around the first of April of 2013 but then revenue "flat lined" and stayed there permanently. We looked at the data 6 ways from hell but identification of a single cause of our difficulties was not possible. Now, I think I understand the situation. During our first few months, excessive expenditures were used for Marketing with what we thought was good justification. We could have simply accepted as fact what we were told by TMI and other franchisees about which Marketing approaches did and did not work. It seemed more reasonable to us to "test" each approach carefully measuring results to allow identification of the most effective techniques then to fund those approaches to the limits of our ongoing ability. We might have been novices with respect to starting a residential housecleaning business but we did have experience running a business. When funding Sunday newspaper inserts as part of our Marketing program was suggested, we quickly realized that input was being received from those less informed than we. This approach had been tried back during 2006 and 2007 at our other business, Friendly with very poor results and given the way Marketing is gravitating to the www one would expect even less effective results today.
During the first few months, we funded virtually every Marketing approach identified during the "test" phase of startup. Now I am convinced that the robust growth observed through March 2013 was the direct result of the higher than sustainable Marketing expenditures of the first few months. Put another way, had we continued funding every known Marketing approach, our growth would have probably continued to increase. The only thing wrong with that concept is we would have run out of money sooner than our plug pulling point of February 28, 2014. We just couldn't afford Marketing expenditures at that level. Now don't get all warm and fuzzy thinking that if a startup is funded with a pile of Marketing money that it will become a glowing success because there were other contributing factors.
While attending the annual conference during February 2013, we learned that TMI had hired The Richards Group to develop new marketing material. Since The Richards Group handled Motel 6 and developed the phrase "leave the light on for you" along with representing Chic-fil-A we were thrilled and eagerly adopted the new stuff. When things started falling apart a few months later, we remembered the change and conducted a test confirming that we had been hit by friendly fire. That experience really was not helpful.
In addition to Marketing expenditures well above what is recommended during early months we also adopted a "generous" pricing approach. Rather than use the approach taught during training, we took advise from other franchisees and priced First Time Cleans at monthly clean amount plus $50. With the room count approach, we determined the monthly price then added $50. At least during the early months of startup, this approach reduced our prices to somewhere close to "competitive" in our area. While this was a good growth technique it is not something that can be sustained long term.
In addition to the aggressive pricing, we offered additional discounts through every door direct mail in the form of $100 off first 3 cleans trying to grow the customer base. If a customer would agree to Regular Maid Service they received a $50 discount on the initial clean then $25 off the second and third clean. I suspect that some of the RMS customer losses resulted from reaching the end of the 3 clean cycle making discounts "go away".
We saw strong growth for about 7 months because of reduced prices and very strong Marketing expenditures. Once the impact of the "extra" Marketing disappeared and we attempted to become more "realistic" with our pricing, revenue flat lined.
From the beginning, we faced very difficult manpower challenges. We hired a Field Manager and a person designated as Team Leader and took them to corporate training with us. Both were terminated within 6 weeks of beginning startup. Locating employees was challenging, problems were many and turnover was high. Even with indicated difficulties, we made progress from a revenue growth perspective for 7 months then revenue “flat lined”. We remained in that state, with the exception of a seasonable surge during December 2013 when we almost broke even until shutdown. High RMS loss was a problem but we could not identify the cause. Virtually everything possible was tried without success. At the end of 18 months, we had lost over $400,000, monthly losses were around $5,000 per month with negative cash flow of $8,000 per month so we decided to discontinue operation.
Even in retrospect, we cannot identify changes that could have been made which would have made the business successful. With a background as a Chemical Engineer, I am prone to over analysis of situations and after much data evaluation I concluded that we are selling a “commodity product”, most customers only care about price, independent competition is intense driving prices down and our 4 member team configuration makes effective competition nearly impossible.
Two other Houston Area franchises were sold around the same time we purchased Fort Bend County. In both cases, the owners opened with both husband and wife working on their franchise startup. Today both guys are back in the workforce to help support their businesses and in at least one franchise the lady is frequently required to work as a cleaning team member because of manpower difficulties. Apparently we were not alone in the workforce recruiting area. It is important to note that both of those locations followed TMI's advice for slow growth and minimal initial expenditures. They started with one team, were their own field managers rather than hiring someone, made slow and "steady" expenditures in marketing, and pretty much "followed the TMI rules." After speaking to one of the two when we were ready to close, and even after we closed, they were no further along that we were, had barely reached break even, and were contemplating leaving the system as well.
This is hearsay but the source is reputable. “The Woodlands territory has been sold 3 times and owners failed in each case”. I wonder whether owner #2 and #3 were told that they were buying “seconds”?
Summary of experience
The Saga - Detailed Account Of Franchise Startup Failure
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Demands of Managing Operation
Hourly Manpower Problems
Professional Manpower Difficulties - Field Managers
Franchises Do Not Fail - They Just "Go Away"
Need Money - Find An Angel
Selling The Business
Owner QualificationsSuccess Motivation