We have analyzed Great Clips franchise cost and profit potential for all those entrepreneurs interested in investing in the Hair Care Industry. This analysis breaks down all initial costs, franchisor royalties, average gross sales, and expected franchise owner profit/ salary per year.
- David Rubenzer and Steve Lemmon opened the first Great Clips hair salon in 1982, and since then, this brand has grown to more than 4,400 locations across the U.S and Canada.
- Launching the new Great Clips franchise unit cost between $178,400 and $376,900; the estimation includes all expenses till the opening day.
- This company charges its franchisees an Initial Fee of $20,000; only veterans and multi-unit franchise developers have certain discount rights regarding this fee.
- The Great Clips franchise owners pay 11% of their hair salon gross revenue for the costs associated with franchisor royalties.
- Average earning Great Clips franchise makes approximately $320,000 in gross sales per year with a 10% profit margin.
- The average earning Great Clips franchise owners can expect to make approximately $33,000 of salary per year per location.
How Much Does The Great Clips Franchise Cost
Starting a new Great Clips franchise demands startup capital between $178,400 and $376,900. This estimation includes $20,000 of the Initial Fee and all other costs until the hair salon opening day.
These hair salons usually are started in or near shopping centers and above investment cost estimation, suppose that investor will choose to lease salon space rather than buy it.
Great Clips franchises usually operate in the space of approximately 900 to 1,200 square feet, and a lot of initial costs that will occur are associated with improving salon leasehold space according to franchisor requirements.
Usually, improvements of leasehold space cost between $65,000 and $160,000; the exact expenditure depends on the condition of the location handed from the landlord!
Table of initial costs:
- Initial Franchise Fee: $20,000
- Initial Advertising Contribution Fee: $5,000
- Grand Opening Advertising Fee: $20,000 to $25,000
- Travel and Expenses While Training: $1,500 to $2,500 per participant
- Architecture Fees: $100 to $6,000
- Leasehold Improvements: $65,000 to $160,000
- Rent and Security Deposits: $1,000 to $10,000
- Fixtures, Signage and Furnishings + Salon Technology Hardware: $40,000 to $55,000
- Freight: $4,000 to $7,000
- Sales Tax on Fixtures, Signage, and Furnishings: $0 to $3,000
- Opening Inventory and Supplies: $4,700 to $6,400
- Insurance: $2,100 to $3,000
- Lease Liability and Review Fee: $0 to $4,000
- Additional Funds: $15,000 to $55,000 – working capital for first 6 to 12 Months
- ESTIMATED TOTAL INVESTMENT COST: $178,400 to $376,900
Options To Cover Initial Investment Cost of Great Clips Franchise
Great Clips, as a company, doesn’t offer direct financing arrangements. However, sometimes they provide loan guarantees for franchisees under limited circumstances and based upon certain criteria.
Franchisees who get a lease guarantee must pay a non-refundable lease liability fee of $1,500. Also, new franchise owners will need to pay a lease review fee of $2,200 to $2,500, which covers the cost of attorney’s fees.
Great Clips Franchise Fees
Initial Franchise Fee
The Great Clips charges its franchisees an Initial Fee of $20,000 per every new location. New franchise owners must pay this sum of money in full immediately after closing the franchise agreement.
This franchisor demands that investors should not finance the Initial Franchise Fee from a loan which means that new franchisees will need to cover this expense from their liquid assets (cash).
Available Initial Franchise Fee Discount Programs
The Veterans of the USA or Canadian Army Forces and investors who choose to open more than one franchise unit get a certain discount on the Initial Franchise Fee cost.
Great Clips gives a $5,000 rebate on the Initial Fee cost to veterans of the United States and Canadian armed forces who have been honorably discharged from the military.
The investors who choose to sign a ”Three Star Program Agreement” are obligated to open three new franchised salons. Instead of paying the $20,000 Initial Franchise Fee under each Franchise Agreement, they pay a total fee of $35,000 for all three units.
Initial Advertising Contribution Fee
In addition to the Initial Franchise Fee, franchisees, upon signing the Franchise Agreement, must also pay a $5,000 Initial Advertising Contribution Fee to the franchisor.
This fee is charged only at the start, and every investor must count on this expense because all new franchisees are obligated to pay it after a closing agreement with the franchisor!
Grand Opening Fee
Franchisees must spend between $20,000 and $25,000 for the so-called ”Grand Opening Fee”. This fee covers a cost associated with launching local marketing campaigns near the territory of the new salon.
Investors must count on this expense because this franchisor requires that all franchisees must spend this amount of money one month before opening and a few months after opening.
Ongoing Franchisor Royalty Fees
The Great Clips franchisees are obligated to pay 11% of the total gross revenue for the costs associated with different ongoing franchisor royalties.
These are ongoing operating costs which means that these fees will be presented throughout the whole duration of the franchise agreement!
We will now break down these royalties in order to show potential franchisees what they can expect.
Great Clips Franchise Royalty Fee
- 6% of all gross revenue
The Great Clips Royalty Fee is 6% of Gross Sales, and it is charged by the franchisor every week.
As a franchise owner, you are paying the franchisor this amount in return for using its trademarks and ongoing service/support in every segment of the business.
Advertising Contribution Fund Fee
- 5% of all gross salon revenue
All franchisees are obligated to contribute 5% of their gross sales to the franchisor Ad Fund; they pay this cost on a weekly basis. This expense is referred to as an Advertising Contribution Fund Fee.
In practice, this means that you, as a franchise owner, will need to redirect 5% of all money made by selling services, products, and goods in the franchised salon sales to the franchisor’s bank account.
However, this fee is not the franchisor’s source of income because the franchising company will reinvest all of this money in national or local marketing campaigns that aim to establish better brand awareness among the population/ potential clients.
These hair salons operate in between 900 to 1,200 square feet spaces which means that franchisees will need to pay between $1,600 and $3,600 of rent per month.
The exact monthly rent outlay will vary according to the current real estate market conditions in the geo area where the hair salon is started. So, every investor must do their due diligence to determine how much in its town/state rent is charged!
According to Peerspace, shopping facilities cost by a square foot in the United States between $18 to $30, which can give an insight into how much rent price investors can expect to have.
Salon Upgrade Fee
Potential franchise applicants must be aware that every seven to 10 years, this franchisor requires its franchisees to remodel the look of the salon. These salon upgrades cost between $20,000 and $80,000 and must be added to the list of operating costs that will occur during the agreement.
Other Ongoing Fees
- Software License and Support Fee: $155 per month per salon
- Local Co-op Dues Fee: $100 per month
- Recruiting Technology Fee: $500 per year per salon
- Insurance Coverage $2,100-$3,000 per year
- Network and Hardware Managed Services Fee: $14.99 per month per salon
- Mobile Device Management Licensing Fee: $51 per year per iPad
- Management iPad Management Fee: $25 per month per Management iPad
- Aerohive BR200 Salon Router Warranty Fee: $43 per year
- Meraki MX68-CW Salon Router Maintenance Fee: $240 per year per router
- TotalCare Replacement Service Fee: $34 per year per terminal
- Lane/5000 Warranty and Support Program: $58.56 per year per terminal
- Salon Ongoing Maintenance Costs: $3,000-$9,000
Although all these fees seem small, when we add all of them to one list, we can see that the amount of money that franchise owners will need to spend on them is not small.
How Much Is Great Clips Franchise Profit
To reveal the profit potential of the Great Clips franchise, we need to reveal data about gross revenues and profit margin that Great Clips hair salons deliver to their franchisees!
Average Gross Revenue Per Year
Average earning Great Clips franchise makes approximately $320,000 in gross revenue per year per location. These earnings are just average, meaning some locations earn more, some less.
Investors must be aware that these franchises can’t deliver huge sales since the haircare industry is highly developed, and concurrent businesses that target the same customers will be presented on every corner.
In the first year of business, gross sales are expected to be lower than the average mentioned above. As a business establishes its reputation and makes more regular customers, it will be reflected in the higher sales level.
Great Clips Franchise Profit Margin
The Great Clips franchise owner can expect that his business will deliver a 10% profit margin from the gross sales level the location makes per year/week.
The hair salons are not as profitable if we look at data regarding profit margins that they deliver as it can seem at first glance.
Also, this brand franchise owners need to spend 11% of all earned money (gross sales) for costs associated with franchisor royalties. This percentage will impact and reduce the profit margin, which will be reflected in lower owner profit.
How Much is Great Clips Franchise Owner Salary
Great Clips franchise owner who operates an average earning salon can expect to make approximately $32,000 in salary/profit per year per franchised location.
The franchises of this company deliver less than is average franchise owner’s salary in the U.S. So investors must be aware that they will need to start more than one franchise unit( Multi-Unit Agreement) if they want to make more money.
How We Estimate Great Clips Franchise Owner Salary Per Year
We make these our above estimation of Great Clips franchise owner salary according to financial data available in this franchisor Franchise Disclosure Document.
Usually, franchisors reveal in their disclosure document stats about the average gross sales that their franchise units make, but this franchisor doesn’t reveal that data.
However, every franchisor must incorporate independent auditors’ financial reports in its disclosure document; from it, we extracted financial stats of expected gross sales!
Let’s see what the report has revealed!
Great Clips, INC Indiepedent auditor Financial Report(December 2021)
- The company has earned from charging its franchisee’s royalty fee a total of $86,747,656 from 4,472 franchise units.
If we split the total ($86,747,656) franchisor earning from the royalty fee, with 4,472 (number of locations), we come that, on average, every salon has paid $19,397.955 of the royalty fee.
If we know that every franchise pays from their gross revenue, 6% for a royalty fee, the calculation is pretty simple:
- 100% : 6% = 16.66
- $19,397.955 x 16.66 = $323,169.930
The $323,169 is the average gross sales level that Great Clips franchises make; on that amount, we implement a 10% profit margin, and from that, we come to the conclusion that the franchise owner can expect to make $32,316 of salary per year!
Is it Profitable to Own Great Clips Franchise?
Yes, owning the Great Clips franchise is a profitable business venture; however, investors will need to open at least three salon locations to make $100,000 of profit/owner’s salary per year.
The estimated owner’s profit from one location is approximately $33,000, so investors can’t expect to become millionaires by launching this hair salon! But, if the franchisee is also and worker (hair stylist), the earnings per year will be much higher since labor/payroll costs will be much lower.
So we can conclude that this franchise can be a good choice for a hairstylist who wants to become their boss in their dream business niche or investors with the necessary capital to open at least three locations!
How Much Is Great Clips Franchise Agreement Duration
The Great Clips franchise agreement has ten years’ length from the date of opening; after the term expires, franchisees can renew for additional ten years by paying a $1,750 Renewal Fee.
Are All Great Clips Franchises
All Great Clips salons are franchises that are managed and owned by franchisees. As of December 31, 2021, Great Clips doesn’t have company-owned salons.
Who Owns Great Clips
Raymond L. Barton has been the owner and the Chairman of the Great Clips. In 1997 he bought out his partners and founders of this brand, David Rubenzer and Steve Lemmon, to become the majority shareholder of Great Clips, Inc.
David Rubenzer and Steve Lemmon opened the first Great Clips salon in 1982 in Minneapolis, Minnesota, and began franchising in 1983, the same year when Raymond L. Barton joined this company.
This brand currently has more than 4,400 franchise units operated by franchisees. Ever since its start in 1982, they were on an upward trajectory of growth in every business segment.
We have analyzed Great Clips franchise cost and potential profit that the owner can expect to make per year. We can conclude that this medium-cost franchise can be more profitable if investors choose to open more than one franchise location.
This brand operates in an industry that is oversaturated with similar businesses, and to be concurrent on the market, service prices are low, which is reflected in low-profit margins!
However, this is an ideal business opportunity for investors who dream to start their hair salon. This franchisor provides a good ongoing service to their franchisees, which can be a valuable help for the rookie entrepreneur who starts their first business venture in the Hair Care Industry.