FDD Talk 2018: Proforma Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Proforma franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Proforma franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Proforma franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Proforma outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Proforma’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• number of Proforma franchise owners in operation for the entire 2017 calendar year that had 2017 sales greater than $400,000, greater than $1 million, greater than $2 million, greater than $5 million, and greater than $10 million, respectively

• number of Proforma franchise owners in operation for the entire 2017 calendar year that had 2017 gross profit greater than $100,000, greater than $250,000, greater than $500,000, greater than $750,000, and greater than $1 million, respectively

• number of Proforma franchise owners in operation for the entire 2017 calendar year that had 2017 gross profit greater than 35%, greater than 40%, greater than 45%, greater than 50%, and greater than 55%, respectively

• 2017 average, high, and low order size for Proforma franchise owners during calendar year 2017

• number of Proforma franchise owners with 2017 sales over $1,000,000 through $1,999,999 (Million Dollar Club Franchisees), and their average, high, and low gross sales

• number of Proforma franchise owners with 2017 sales of $2,000,000 or greater (Multi-Million Dollar Club Franchisees), and their average, high, and low gross sales

• 2017 average gross sales, gross profit, and gross profit percentage for start-up franchises (i.e. franchise owners entering the system without relevant industry experience)

• 2017 average gross sales, gross profit, and gross profit percentage for RIE franchises (i.e. franchise owners entering the system with relevant industry experience)

Section I – Background Information

17 Things You Need to Know About the Proforma Franchise

Appoints New President

1.  At the end of October 2018, Proforma, the fourth-largest promotional products distributor in the industry, announced the promotion of Doug Kordel to president. In his new role, Kordel will form and lead Proforma’s leadership and management teams in addition to handling high-level operational issues and spearheading the development, communication, and implementation of effective growth strategies and processes. Kordel previously served as chief operating officer and general counsel directing all aspects of Proforma’s legal affairs to ensure protection of Proforma’s legal rights.

2.  Greg Muzzillo, founder of Proforma, said, “It is with great pleasure that we announce the well-deserved promotion of Doug Kordel to president. We are confident Doug will continue to provide the leadership and direction needed to support our entire Proforma family. Doug’s experience and dedication has been instrumental in achieving our system-wide sales growth and success as one of the largest distributors in the industry.”

3.  Kordel joined Proforma in 2003 as compliance officer and general counsel and has had different roles within Proforma including director of human resources, chief business development officer, chief strategic development officer, and chief operating officer. Throughout his tenure, Kordel has continuously worked side-by-side with a network of more than 700 franchise owners in establishing and structuring their business model while providing coaching, leadership, and inspiration along the way.

4.  Kordel said, “It’s an honor to be able to work with such a talented group of people throughout the Proforma family network. I look forward to continuing to support Proforma’s mission to help our owners’ and support center team members’ dreams come true.”

Proforma Petty Marketing Announces Partnership with Porsche North America

5.  In early October 2018, Ralph Petty, owner of Proforma Petty Marketing in Cleveland, Tennessee, announced a two-year, multi-million dollar deal with Porsche North America. As part of this exclusive project, Proforma Petty Marketing will serve as the sole provider of promotional branding products for Porsche’s new owner car kits.

6.  The partnership between Proforma Petty Marketing and Porsche was made possible through the support of Proforma’s major accounts team and vendor development team. Together, both teams assisted in landing this exclusive project by showcasing Proforma’s innovative ProStores platform, a proprietary online storefront developed exclusively for Proforma owners and their network of key vendors.

7.  Petty added, “With the support of the Proforma family and their partners, I’m able to position myself as a full service marketing agency giving me a competitive advantage in winning high-profile accounts and extensive e-commerce projects. Proforma’s immeasurable resources have made it possible for my company to offer innovative online solutions that will serve our vast portfolio of clients.”

8.  Porsche North America’s ProStore marks the 600th online storefront to launch for Proforma since 2016. To date, ProStores have generated more than $40 million in sales.

9.  Greg Muzzillo, founder of Proforma, said, “Proforma’s ProStores platform is instrumental in helping owners present e-commerce solutions to potential clients looking to combine the best functionality of both traditional print and promo-specific websites. We want ProStores to give owners an advantage over our competitors by minimizing their out-of-pocket expense, while maximizing their digital presence through our online storefront solutions.”

Introduces New Program to Recruit and Maximize Success of Young Professionals

10.  At the end of September 2018, Proforma introduced its new concept, Proforma Under 40, at the company’s 2018 Convention and Family Reunion. The program was designed to provide young professionals with an opportunity to learn about the industry of print and promotional products. The core of the program provides education and resources to help maximize their success.

11.  Greg Muzillo, founder of Proforma, said, “We are very excited to help lead the way in our industry by expanding awareness of the exciting opportunities for young professionals in printing, promotional products, and packaging distribution. Many young professionals are not aware that our industry even exists, despite seeing and using a variety of print and promotional products every day.”

12.  The Proforma Under 40 inaugural committee, made up of young Proforma owners, will be working closely with Proforma leadership to create unique experiences for young Proforma professionals to accelerate their success. The chairman of the Proforma Under 40 committee, Roger Casey, owner of Casey Creative Powered by Proforma, has been invited to participate in all Proforma Owner Advisory Council (OAC) meetings.

13.  The OAC is made up of elected Proforma owners who collaborate on new ideas for the company and represent owners in their respective geographic regions. The collaboration between the Proforma Under 40 committee and the OAC will help Proforma sharpen its focus on recruiting and supporting young professionals to Proforma and the entire industry.

Company History

14.  Proforma was founded by Greg Muzillo in 1978, a year after he graduated from college. The company provides medium-sized businesses and large corporations with business documents, forms, promotional products, printing, and other services. Within two years, Proforma had earned over $1 million in sales.

15.  Muzillo started franchising the Proforma concept in 1986. Over the next decade, Proforma continued to grow and opened its first international location in Canada in 1991. A few years later, Proforma expanded its services and introduced the ProSource online catalog.

16.  By 2000, Proforma had grown to 500 locations. Since then, Proforma has continued to grow through franchise locations in the United States and Canada. Muzillo and his wife Vera, who is the CEO of Proforma, continue to run the business he started over 40 years ago.

Entrepreneur’s Franchise 500

17.  Proforma did not rank on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Proforma franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Proforma’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  699
• Outlets at the End of the Year:  676
• Net Change:  -23

2016

• Outlets at the Start of the Year:  676
• Outlets at the End of the Year:  666
• Net Change:  -10

2017

• Outlets at the Start of the Year:  666
• Outlets at the End of the Year:  641
• Net Change:  -25

Company-Owned

2015

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2016

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  0
• Net Change:  0

2017

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• To help you evaluate this franchise opportunity, Proforma has compiled certain Gross Sales, Gross Profit, and Average Order Size information for the calendar year ending December 31, 2017.

• Proforma has compiled the information for each franchise classification based upon information Franchise Owners have reported through its system. Proforma did not audit this information.

• Some Franchise Owners have earned this amount. Your individual results may differ. There is no assurance that you will earn as much.

• Proforma has computed the average Gross Sales, Gross Profit, Gross Profit Percentage, and Average Order Size for each type of franchise based upon information it has collected in the ordinary course of business.

• Proforma compiled this information only from Franchise Owners whose franchised businesses were in operation for the entire year. Results from Franchise Owners who either began or terminated their franchise relationship with Proforma during 2017 are not included.

• The Gross Profit information was derived by subtracting the reported Cost of Goods Sold from the reported Gross Sales. From their Gross Profits, Franchise Owners pay Proforma’s fees and pay all the business, wage, and debt service expenses associated with running their businesses, including any taxes.

• Franchise Owners are classified as Start-Up or RIE. A Start-Up Franchise Owner is a Franchise Owner entering Proforma’s franchise system without Relevant Industry Experience. A RIE Franchise Owner is a Franchise Owner entering Proforma’s franchise system with Relevant Industry Experience. RIE includes both Relevant Industry Experience and Conversion franchises.

Part 1 – Franchises with Gross Sales Greater Than $400,000 (244 Owners Representing 41% of the Franchised Businesses Reported in Item 19)

• In calendar year 2017, 244 Franchise Owners in the survey had sales greater than $400,000. These 244 Franchise Owners include 218 RIE Franchise Owners and 26 Start-Up Franchise Owners. This group represents 41% of the total number of Franchise Owners that were in operation for the entire calendar year of 2017 and reported in Item 19.

• The reported information does not include the results of 58 Franchise Owners whose affiliation with Proforma terminated during 2017, including 8 Start-Up Franchise Owners and 50 RIE Franchise Owners.

• The reported information does not include the results of 33 Franchise Owners whose affiliation with Proforma began during 2017, including 4 Start-Up Franchise Owners and 29 RIE Franchise Owners.

Total