FDD Talk 2018: CMIT Solutions 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 CMIT Solutions franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a CMIT Solutions 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 CMIT Solutions franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned CMIT Solutions 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 CMIT Solutions’ financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• monthly cash flow break-even figure, based on CMIT’s estimate of the expenses needed to run a CMIT Solutions business

• average per workstation, per user, and per server cost to franchisee and pricing to end user for Marathon, Marathon Performance Plus, and Marathon Ultra (includes Performance Plus, and unlimited on-site support) in February 2018 (month of survey)

• average number of Marathon clients served by the 138 CMIT Solutions franchisees offering Marathon services in February 2018

• average employee hourly labor cost, technician hourly billing rate for break fix, and technician hourly billing rate for professional services for Level 1 Technicians, Level 2 Technicians, Level 3 Technicians, and Service Delivery Managers in February 2018

• 2017 average gross revenue by quartile for the 103 CMIT Solutions franchisees operating for 24 months or more as of December 31, 2017

• breakdown examples of 2017 gross revenue figures to illustrate the sources of gross revenue in a single franchised CMIT Solutions business selected from each quartile

Section I – Background Information

15 Things You Need to Know About the CMIT Solutions Franchise

Celebrates Surpassing 200 Locations at Annual Convention

1.  In late May 2018, CMIT Solutions held its annual convention in Vancouver, Washington. The gathering also served as an opportunity to celebrate CMIT Solutions’ growth milestone of 200 offices open.

2.  Jeff Connally, president and CEO of CMIT Solutions, said, “The Annual Convention is always the highlight of the year. We get to bring all of our franchise partners and the home office together to inspire and learn from each other. We have been growing faster than we ever have, and continuing to encourage a collaborative community is essential to our future. The time in Vancouver was inspiring and a good reminder of how strong of a team we all are together.”

3.  Themed “CMIT Elevate,” the convention celebrated several key accomplishments and stimulated all attendees – franchisees, local market team members, and corporate leadership – to continue to aim high, think big, and rise to the occasion day in and day out. The three days included extensive sales and marketing training, educational seminars, and opportunities to share best practices.

4.  Throughout the convention, CMIT Solutions bestowed honors on top-performing franchisees and their team members in attendance for sales, customer retention, and superior operations over the past 12 months.

5.  At the banquet dinner, Connally presented the highest honor, “Franchise of the Year,” to CMIT Solutions of Central Rhode Island owner Jason Arabian. This was a special moment for CMIT Solutions, as Arabian is the only franchise partner to win this award not only twice, but three times. There must be a five-year gap period before a franchise partner can win the award again.

6.  In addition to the other awards presented, CMIT Solutions highlighted that the company had added 20 new franchises in 2017, and is expected to open 30 in 2018.

Strengthens Longstanding Relationship With Continuum

7.  At the beginning of May 2017, CMIT Solutions and Continuum announced a three-year extension to the two companies’ longstanding relationship. CMIT is committed to consistently delivering industry-leading platform offerings to its franchisees, and after extensive evaluation of current market leaders, CMIT had selected Continuum as its exclusive provider of remote monitoring and management solutions. The continued partnership benefits all of CMIT’s locations across North America and strengthens the long-term partnership between CMIT and Continuum, which began in 2006.

8.  Jeff Connally, CEO of CMIT Solutions, said, “This agreement represents a new level of commitment in our joint relationship. We have long benefited from the labor displacement model that Continuum offers through its outstanding high-value/low-cost Network Operations Center, technical advantage projects, and Help Desk. With a single partnership representing this wide range of capability, our franchise partners enjoy significant operational efficiencies and technical support. This also gives our franchisees instant breadth and scale, depth of skills, and the credibility to compete effectively.”

9.  Continuum’s IT management infrastructure is built on the company’s intelligent Remote Monitoring and Management (RMM) platform, which consolidates related alerts into one actionable ticket, significantly reducing the noise and false positives that can diminish operational efficiency.

10.  Michael George, CEO of Continuum, added, “We are honored to be selected by CMIT to provide our RMM platform, as that represents the core functionality that defines the managed services marketplace. Our goal is to make CMIT franchisees the fastest-growing, most competitive, and most profitable IT service providers in their respective geographies.”

Company History

11.  CMIT Solutions was founded in 1996 by Georgia Jones as an IT training and support provider to individuals. The company was one of the earliest to offer IT support to help people operate their home computers. Franchising started in 1998 and CMIT Solutions began offering its services to local businesses.

12.  As the use of computers for business gained widespread adoption, small businesses were attempting to adopt a range of applications once available only to large companies. When they failed, business owners fell back on expensive, inefficient break-fix solutions, the only option available at the time. CMIT Solutions stepped in to fill this need and by 2002, small businesses made up 80% of the company’s revenue, while only being 20% of its customer base.

13.  In 2004, the company formally changed its name to CMIT (Completely Managed Information Technology) Solutions, Inc. Since then, CMIT has focused on offering IT solutions to the small business market. CMIT Solutions CEO Jeff Connally, a former IBM executive, joined the company’s board in 2005 and stepped in as CEO a year later.

14.  In 2010, Connally decided to acquire CMIT Solutions after the company’s other investors were looking to cash out. Today, CMIT Solutions has locations across the United States and a few in Canada, where it is looking to expand.

Entrepreneur’s Franchise 500

15.  CMIT Solutions ranked No. 186 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of CMIT Solutions 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 CMIT Solutions’ 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:  146
• Outlets at the End of the Year:  153
• Net Change:  +7

2016

• Outlets at the Start of the Year:  153
• Outlets at the End of the Year:  163
• Net Change:  +10

2017

• Outlets at the Start of the Year:  163
• Outlets at the End of the Year:  185
• Net Change:  +22

Company-Owned

2015

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

2016

• Outlets at the Start of the Year:  0
• 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

• The following survey of CMIT franchisees was conducted during February 2018 (the “February 2018 Survey”), the most recent time period for which this information is available. CMIT has relied on the February 2018 Survey to show information regarding prices charged for specified services and information regarding the costs and billing rates of employed technicians.

• The February 2018 Survey report measures only a few aspects of the historic financial performance of those existing franchisees who responded to the survey.

• At the time of the February 2018 Survey, there were a total of 141 franchisees in the CMIT System operating 185 territories. A total of 101 franchisees voluntarily responded to the survey, which represents approximately 72% of the operating franchisees in the system.

• The number of responses varied for each question asked, as not all CMIT Solutions franchisees surveyed offer all of the products or services referred to in the survey.

• CMIT has not audited this information to confirm that it is correct, and has relied on the information provided directly by responding franchisees.

• There are no material differences between the businesses operated by the respondents to this survey and the franchise offering described in the franchise disclosure document.

Part 1 – Cash Flow Break-Even Calculation

• For planning purposes, the achievement of $8,000 in monthly Gross Professional Services revenue is an approximate cash flow break-even figure, based on CMIT’s estimate of the expenses needed to run a CMIT Solutions business.

• The monthly cash flow break-even figure will be more for some franchisees and less for others, depending on the level of the franchisee’s overhead expenses. This information is based on CMIT’s experience and was not supplied directly by its franchisees.

• The chart below shows expenses compiled directly from the estimates CMIT provides in Items 6 and 7 and is intended for your general assistance in preparing your own cost estimates.

• For Technical Staffing, CMIT used the lowest figure representing a typical monthly expense for a part-time Level 2 Technician while the business is starting.

• During the initial launch period of the franchise, CMIT has found that a new CMIT Solutions franchise does not have enough client business to justify a full-time technician, and it usually either hires or contracts with a part-time technician or shares a full-time technician with a neighboring franchisee.

• Based on these estimated costs, CMIT concludes that $8,000 in Gross Professional Services revenues is a workable cash flow break-even figure.

• Your actual cash flow break-even may differ from this based on your individual decision to charge additional expenses to your business, or your individual decision to rent outside office space, etc.

Monthly Recurring Expenses