What does 'Solution as a Percent of Revenue' represent for a Chem Dry franchise, and is it a fixed or variable cost?
Chem_Dry Franchise · 2024 FDDAnswer from 2024 FDD Document
r Franchise" reflects the median of the total annual revenue that the Responding Franchise Owners reported.
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- "Solution as a Percent of Revenue" is the average cost of all cleaning solutions bought from CDI as a percent of reported revenue by the Responding Franchise Owners for each of their Responding Franchises. This is a variable cost. We have no information about the labor cost, supplies, automotive costs and other costs that vary with the number of jobs performed and the distance traveled by technicians performing the jobs.
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- "Average Years Operating" reflects the average length of time in years that the Responding Franchise Owners have been operating their Chem-Dry business.
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Source: Item 19 — FINANCIAL PERFORMANCE REPRESENTATIONS (FDD pages 55–59)
What This Means (2024 FDD)
According to Chem-Dry's 2024 Franchise Disclosure Document, 'Solution as a Percent of Revenue' is defined as the average cost of all cleaning solutions bought from Chem-Dry, Inc. (CDI) as a percentage of reported revenue by the Responding Franchise Owners for each of their Responding Franchises. This metric reflects the proportion of a Chem-Dry franchisee's revenue that is spent on cleaning solutions purchased from the franchisor. The FDD explicitly states that this cost is a variable cost, meaning it will fluctuate depending on the revenue generated by the franchise.
As a variable cost, the amount spent on cleaning solutions will increase or decrease in direct relation to the amount of revenue a Chem-Dry franchise generates. If a franchise has a high-revenue month, they will likely spend more on cleaning solutions to support the increased service volume. Conversely, in a low-revenue month, the expenditure on cleaning solutions will likely be lower. This contrasts with fixed costs, which remain constant regardless of revenue.
It is important to note that the FDD does not report other variable costs such as labor, supplies, and automotive costs, or fixed operating expenses. Therefore, prospective franchisees should consider these additional costs when evaluating the overall financial performance of a Chem-Dry franchise. The financial performance representation in the FDD only covers the cost of cleaning solutions as a percentage of revenue, and does not provide a complete picture of all expenses that must be deducted from revenue to determine net income or profit.
While the FDD provides data on the 'Solution as a Percent of Revenue' for Responding Franchise Owners, Chem-Dry advises that individual results may vary. A prospective franchisee's actual costs may differ based on factors such as operational capability, pricing strategies, market competition, and the ability to sell ancillary products and higher-margin services. Therefore, it is crucial for potential franchisees to conduct their own due diligence and consider their specific circumstances when assessing the potential profitability of a Chem-Dry franchise.