opening dojo under sensei's name - fee/percentage?

[333kenshin]

Hi,

I recently moved back to my hometown near Los Angeles and am planning to opening a new dojo under the same name as my sensei's, but fully owned, incorporated, and operated by me - so basically a franchise.

He currently operates out of 1 full-time location. The new location is about 12 miles driving distance from the original so both he and some students who live between can visit from time to time, which will really help bootstrapping (an essential reason I'm starting up under his name and not my own).

What is a reasonable franchise fee + royalty percentage under such circumstances? He's not big on writing up contracts or logistics and such, so it's up to me to write up the franchise agreement and ensure I'm offering him numbers that are reasonable.

His baseline business health:

he has 5 stars on both Google and Yelp and is willing to amend his website to include my location so I can piggyback off his SEO

due to both the economy and personal losses, his business took a hit over the past year but was recovering nicely in 2018-2019 until COVID hit

I have been assisting unpaid at his dojo for the past 2.5 years, re-learning the ropes of teaching (it's been 20 years since I stopped training with him when I left for college), and have in particular put in a lot of hours getting him through COVID

I'm considering a one-time franchise fee of $10K, with a recurring royalty of 5% or maybe 10% of gross revenues. The latter depends on whether marketing budget is covered by royalty or separate - at the moment he only spends $300/month on Yelp, but I'm thinking about going for a Spanish-language radio and/or YouTube buy to maximize impact per cost.

These numbers are based on what I've read is typical for "normal" franchises, but I'm wondering whether there are customs specific to karate dojos?

[bushido_man96]

Hello there, and welcome to KF!

I think between 5 and 10% is pretty reasonable. Do you plan on that being from the monthly dues, or will that include testing fees, as well (if you charge testing fees)?

Something else you might consider is if you ever decide to stop promoting your business under his name, or if he moves on and retires, what kind of arrangements can be made for you to either take control of the entire interest, if possible.

[LionsDen]

If his own business is struggling and would have seriously suffered without your free labor I would honestly not advise you pay any major fee up front, and tell him that my free labor counts as an up front payment as you probably saved him at least $10k in that time just from working for free, not to mention keeping students in the dojo.

For my organization I pay $200/year and that gets my students access to several dojos all throughout the US, and a few in other countries.

What exactly will you really be gaining from this business relationship?

I’d say either no up front fee but give him a small percentage, no more than 5%, or a smaller recurring annual fee.

Both ways he’s motivated to keep helping you do better. If you give him 10k up front and a % he may not even care if your dojo goes under in a year or two.

Alternative option.

Keep teaching under him, but for pay, and make yourself his right hand man and learn what he does right, and what he does wrong and then open your own independent dojo while remaining on friendly terms and you guys can still both provide your students the benefit of training at both dojos.

[crash]

while this type of "franchise" is , or was, fairly common back "in the day", the world has changed a lot since then and the federal gov. rules on franchises have increased and are more closely moderated than before. as a franchise you are required to follow whatever rules corporate decides to put in place or bring forth, (him being corporate, you are teaching under his name so its in his best interest to know what, and how you are teaching, its his reputation (name)on the line and he will have a say in how you operate.) failure to comply can result in fines, etc.... while you and your instructor may be good friends now, what happens if he sells or passes the business on to someone else. you could then be stuck with having the hassle of changing the business name, license, documents etc.....starting your own dojo, under his "system" or "style" but under your own name could be a better option. you could still partner up, cross train, etc.. but it would be your own operation without any possible 'red tape" or distractions of interferance from outside parties.