FRANCHISE OF THE WEEK

Koala Insulation

Fast Facts

Background

• HQ: Melbourne, FL
• Founded in 2018, franchising since 2020
• Koala Insulation is an insulation service franchise for home and business owners

Location Trends

Franchise Fees

• Royalty: 3.5%/wk – 6.5%/wk
• Brand Fund: 1%
• Franchise Fee: $49,500

Financial Overview

• The below table discloses information on 76 franchisees that were operational between October 1, 2022 and September 30, 2023 (“2023 Fiscal Year Reporting Period”)

The Wolf’s Take 🍟

Within the franchise industry, Koala Insulation has become the go-to example for the power of this business model.

Given the success of the franchisor, it is’ entirely merited. Here’s a timeline of events for you:

• 2018: Scott Marr starts an insulation business
• 2020: Scott Marr starts franchising his insulation business
• April 2023: Scott Marr’s business (Koala Insulation) gets acquired for ~$90 million 

Within 5 years of its founding, and less than 3 years into the franchise journey, a boot-strapped founder got a ridiculous exit (and it may have been even higher than $90M).

Mind you at the time of acquisition, the brand had 350+ territories sold, and at least 326 of them open. 

That is insane growth. 

Koala is a shining example no doubt, but it’s important to remember they are largely the exception, not the rule i.e. most franchises will not achieve that exit in such a short period. 

That said, credit to Scott and his team – if you listen to my podcast conversation with him, you’ll hear him talk a lot about how franchising is all about how quickly you can transfer knowledge to new franchisees. 

He clearly knows a thing or two about that given the speed his brand was built.

What About the Franchisees?

Whenever a brand grows quickly from a “units in development” standpoint, my first 2 questions are:

• How many of those are actually getting open?
• How many of those are staying in business?

Brands that award a ton of franchises at a rapid pace need to be able to handle the influx of franchise owners. If they can’t train them (aka transfer their expertise to someone who has never run that business before), and continuously support them, things can get messy quickly.

In 2022, they closed/terminated ~10% of their franchise base (29 closed, while they started the year with 248 territories).

However 2023 showed that things have stabilized, with just 1 closure out of 326 territories to start the year.

Today they have 386 territories operating, and they give insight into their 2023 fiscal year, with data from 76 franchisees that operated 284 territories:

• Average revenue: $942k
• Highest performer did $3.4M
• Lowest performer did just $112k
• Single territory franchisees averaged $717k

No profit data from 2023 was reported, but insights into 2022 show that you can (likely) generate cashflow.

A couple things to note on the above chart:

1. That is a 5 territory operation, which equates to ~$184.5k in franchise fees paid. Recognize that increases the initial investment range to reach this level of performance (initial investments only account for the cost to start 1 location/territory, so it’s only 1 franchise fee lumped in)

2. It’s unclear whether this is a full profit & loss statement. It is not unheard of that certain expenses get omitted from item 19’s in FDDs. The best way to understand the most complete income statement is to speak to franchisees! They are always your best resource.

Overall – Koala has gone from an upstart brand to an established player in home-services, and is now part of the greater platform that is Empower Brands. 

Resources

• Koala Insulation Franchise Website
• Wolf of Franchises Interviews Koala Founder, Scott Marr
• Empower Brands Welcomes Cory Lyons as Brand President of Koala Insulation

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SMB TWEET OF THE WEEK

The Real Silver Tsunami – Clint Fiore

This was an awesome post on what is really happening with the silver tsunami. Clint is a small business broker who is on the front lines daily making SMB transactions happen, so it’s a great perspective to tap into.

It’s 100% worth the read, but my biggest takeaways are the following:

1. There are far more buyers than sellers right now (good for sellers, not for buyers)

2. “Boomer barriers” as Clint puts it 😂 AKA the owners deliberately under report financials to avoid Uncle Sam, and they also tend to hold onto their businesses as has become a massive part of their identity – both of these makes deals harder to get done

Overall – there are certainly out there but it’s an absolute grind to find them and could take multiple years. 

If you’re a searcher reading this, consider getting into an established franchise system where you can then acquire retiring/selling franchisees of that brand!