FDD Talk 2020: Snap-on 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 Snap-on franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Snap-on franchise, based on Item 7 of the company’s 2020 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Snap-on franchise, based on Items 5 and 6 of the company’s 2020 FDD

• Section IV – Number of franchised and company-owned Snap-on outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Snap-on’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• number and percentage of Snap-on franchisees for each of the given ranges of “Paid Sales” during the 2019 reporting period, presented in $50,000 increments between $150,000 and $1,500,000+ per year (the sample includes only those franchisees who operated for all 12 months of the 2019 reporting period and for which the franchisor has received Paid Sales information for the full period)

• average discount to franchisees from suggested prices, based on all franchisee purchases of Products from Snap-on in 2019

Section I – Background Information

19 Things You Need to Know About the Snap-on Franchise

Celebrates 100th Anniversary with Special-Edition Toolbox

1.  To celebrate Snap-on’s 100th anniversary, Snap-on released, near the end of February 2020, the 100th Year Edition 68” EPIQ Roll Cab with matching Workcenter and Lockers. The special edition toolbox features the first-time color combination of gunmetal clear coat paint – a finish exclusive to the EPIQ line – with a new brushed red trim color that is a darker, richer hue than a standard red trim. The unit is decked out with metal medallions and graphic panels representing the historical significance of the iconic 100-year-strong Snap-on brand.

2.  As a nod to the company’s founding year (1920), only 1,920 units are being manufactured and a serialized lock rail medallion with individually numbered plates showcase each box’s place in Snap-on history. The 12-drawer roll cab includes a bedliner PowerTop with LED lights; customizable, unique-to-the-market SpeeDrawer for organizing loose fasteners, parts, and tools with built-in, color-matching dividers.

3.  These boxes are engineered EPIQ strong with traditional corner gussets and standing seam construction that has additional top, bottom, and side support for the highest load capacity and InPulse flush-finish drawers that are industry-leading strong, easy to open/close, and designed to not drift open. The box’s ISO-Ride+ System features 7 x 2″ swivel lock mag wheels, each tough enough to support a ton. Flush fronts on the box and trim reduce snag points.

Launches New Diagnostic Tool

4.  In mid-February 2020, Snap-on launched SOLUS LEGEND, which delivers an explosion of productivity with full vehicle diagnostic capabilities and motorcycle diagnostics in one tool, featuring a special bezel with a “fireworks” design. SOLUS LEGEND allows professional service technicians to take on more jobs with access to automotive coverage for 49 domestic, Asian, and European vehicles as far back as 1980. It also includes comprehensive OEM-specific motorcycle coverage for nine domestic, Asian, and European makes as far back as 2000.

5.  Fast and productive features of SOLUS LEGEND include:

• Super-fast boot up – ready in just five seconds with diagnostic results in as little as 30 seconds;
• Detailed trouble code definitions, live data, functional tests, relearns, and adaptions;
• Customizable to work the way that technicians do with custom data lists, freeze-frame, PID sorting, pause, zoom, PID trigger, snapshot, and cursor functions;
• Instant vehicle ID automatically powers up and reads the vehicle ID when connected;
• One-Touch Code Scan and Clear performs a complete scan of all available vehicle systems;
• Verify diagnosis and repair with powerful bidirectional controls for operations such as injector balance, gauge sweep, misfire detection, brake bleed, and EVAP;
• Embedded SMX Operating System dedicated to diagnostic functions for fast, reliable operation;
• Automatically upload vehicle system reports via Wi-Fi to the Snap-on Cloud (when using current software) and access them from a phone or computer; print, e-mail, and text from there.

6.  SOLUS LEGEND also offers expert knowledge and tips such as SureTrack, which delivers diagnostic experience and verified parts replacement records harvested from millions of repair orders. In addition, technicians can record and play back all available live data parameters and graph any four on screen at once.

7.  The enhanced design features a large eight-inch display for better readability and greater ease of use. The steady-charge lithium-ion battery system charges automatically from the vehicle. A user-programmable hot key provides instant access to frequently-used functions.

Introduces Prepaid Plans for Intelligent Diagnostic Tools

8.  In late October 2019, Snap-on introduced a one-year Intelligent Diagnostics prepaid plan to help professional service technicians ensure that there are no gaps in their Snap-on software coverage and ensure that their ZEUS, TRITON-D8, and APOLLO-D8 diagnostic tools are continuously up-to-date.

9.  The Intelligent Diagnostics prepaid plans are more than just keeping coverage updated, the plans also enhance features and capabilities to maximize the diagnostic tool investment, powering up the tool’s performance so that it is even better than the day it was bought.

10.  Prepaid plans give technicians all the Intelligent Diagnostics advanced capabilities at a value price, guaranteeing the full functionality that this breakthrough diagnostics technology has to offer:

• Complete data service and coverage for 47 domestic, Asian, and European makes;
• Smart Data that guides the technician to everything they need and nothing they don’t;
• SureTrack expert information;
• Quick access to functional tests and service resets and relearns;
• New FIAT Chrysler Automobile access for 2018 and newer vehicles with the recently introduced Snap-on Secure Vehicle Gateway.

11.  In addition to the prepaid plans for the Intelligent Diagnostics-enabled tools, Snap-on also offers a software rolling subscription program that removes the risk of lost coverage and capabilities from Intelligent Diagnostics expiring. Snap-on has a software option for every need and budget, promising that the technician’s tool is always updated and ready to diagnose problems quickly, driving them to power on confidently through the toughest repairs.

Company History

12.  Snap-on was founded as the Snap-on Wrench Company in 1920 by Joseph Johnson and William Siedemann in Milwaukee, Wisconsin. Johnson, who was an engineer, came up with the idea for “interchangeable sockets,” as the socket wrenches used by mechanics at the time were one-piece units. Interchangeable sockets would make repair work easier and quicker.

13.  With the help of his co-worker, Siedemann, Johnson spent weekends using crude bending jigs and pure muscle to fashion two sample sets of five handles and ten sockets. Using these demo sets, Johnson and Siedemann generated over 500 C.O.D. orders.

14.  Johnson and Seidemann sought out the expertise of Stanton Palmer and Newton Tarble to market and sell their products. With the help of Palmer and Tarble, Snap-on’s sales grew rapidly and a 2,500-square-foot manufacturing facility was opened in Milwaukee. Over the next few years, the Snap-on line of tools grew and in 1923, the company published its very first tool catalog.

15.  In order to facilitate the company’s growth, Palmer and Tarble identified 20 cities where branch offices would be established. By 1925, there were 17 branches and 165 salesmen selling Snap-on hand tools direct to mechanics. Snap-on continued to grow over the next few decades, surviving the Great Depression and World War II by putting customers first.

16.  The company offered a “Time Payment” system, which allowed mechanics to get their tools right away so they could work and make payments. Snap-on was also one of the first companies to create a “Needs List” or wish list, which is used by nearly every retail company today. During World War II, Snap-on was a preferred supplier to the government and produced tools for the war effort.

17.  Snap-on continued both its domestic as well as international growth in the 50s, 60s, 70s, and beyond. The brand added even more tools to meet a wide array of needs across different industries. In 1990, Snap-on became the first mobile tool company in the U.S. to convert to a franchise operation.

18.  Snap-on has also bolstered its growth by acquiring various tool companies, such as Bahco, Pro-Cut, Car-O-Liner Holding AB, and Norbar Torque Tools. Today, there are Snap-on locations all around the world and the brand has become a household name.

Entrepreneur’s Franchise 500

19.  Snap-on ranked No. 31 on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Snap-on franchise costs, based on Item 7 of the company’s 2020 FDD.

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

• Please click here for detailed information on Snap-on’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

• Outlets at the Start of the Year:  3,340
• Outlets at the End of the Year:  3,340
• Net Change:  0

2018

• Outlets at the Start of the Year:  3,340
• Outlets at the End of the Year:  3,327
• Net Change:  -13

2019

• Outlets at the Start of the Year:  3,327
• Outlets at the End of the Year:  3,302
• Net Change:  -25

Company-Owned

2017

• Outlets at the Start of the Year:  117
• Outlets at the End of the Year:  121
• Net Change:  +4

2018

• Outlets at the Start of the Year:  121
• Outlets at the End of the Year:  106
• Net Change:  -15

2019

• Outlets at the Start of the Year:  106
• Outlets at the End of the Year:  139
• Net Change:  +33

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

Part 1 – Paid Sales

• The following Statement of Paid Sales (“Statement”) illustrates various levels of sales reported by numerous franchisees in the Snap-on system for sales activity during the 2019 reporting period.

• Paid Sales are presented in $50,000 increments for paid sales between $150,000 and $1,500,000 per year.

• The franchisor compiled the Statement from information reported to it by its franchisees.

• The Statement includes only information received from franchisees who operated for all 12 months of the 2019 reporting period and for which the franchisor has received Paid Sales information for the full period. Accordingly, franchisees who began or ended operations during calendar year 2019 are not included in the Statement nor are franchisees who failed to submit all Paid Sales information for all of 2019.

• Snap-on had 3,648 franchises that operated in all or part of 2019. Of those 3,648 franchises, there were 216 franchises that ceased operations due to retirement, cancellation, non-renewal, or other termination and 130 that transferred their franchise business to a third party. Of those 346 franchises, 67 still operate one or more Snap-on franchise businesses.

• Of the 346 franchises that ended operations during 2019, 29 franchises operated for less than 12 months.

• Of the 130 franchises that transferred their franchise business to a third party, 8 transferred their franchise business after operating for less than 12 months.

• Some franchisees reporting Paid Sales information have chosen to operate with a sales employee on either a full or part-time basis. Having an employee may impact their Paid Sales. Snap-on does not track which franchisees have sales employees.

• If a franchisee operated an additional franchise, that additional franchise is reported as a separate “franchise” in the Statement.

• The Statement does not include information on Paid Sales for Snap-on employees who sell tools and equipment to customers that are similar to a franchisee’s customers or Paid Sales of Independents because Independents are not required to submit Paid Sales information.

• Snap-on franchisees do not have to report their total revenue to the franchisor. A franchisee’s Paid Sales (defined below) should approximate “total revenues,” except that a franchisee’s sales of tools and equipment purchased from a source other than Snap-on and the value of tools and equipment accepted by a franchisee as a trade-in may not be included in the Paid Sales figures reported to the franchisor.

• A franchisee’s Paid Sales means the sum of: (1) all of the franchisee’s cash sales and revolving account collections; and (2) all open accounts and credit sales assigned to Snap-on or Snap-on Credit by the franchisee.

• To the extent sales taxes are reported to Snap-on by the franchisee, they are included in Paid Sales.

• All franchisees included in the Statement were requested to use the same definition of Paid Sales in the reports submitted to Snap-on.

• Cash Sales are those sales for which a franchisee receives a cash payment, which includes debit and credit card payments, at the time of the sale, including any cash down payment received on an open account, credit sale, or a lease.

• Revolving Account Sales are credit sales between a franchisee and a franchisee’s customer where a franchisee extends personal credit, usually at no interest, to finance the customer’s purchase of tools and equipment.

• Revolving Account Collections are the collections made by a franchisee on revolving account financing extended by the franchisee.

• Open Account Sales are short-term credit sales made by a franchisee to businesses which the franchisee assigns to Snap-on and for which Snap-on gives the franchisee immediate credit as if the franchisee’s customer had paid in cash. Included in Paid Sales is the dollar amount of the credit (which excludes any down payment and trade-in allowance) given to a franchisee when Snap-on accepted assignment of an open account.

• For certain customer purchases, a franchisee may assign to Snap-on Credit, with Snap-on Credit’s consent, the Credit Sales contracts (including “Extended Credit Contracts”) for customer purchases. Snap-on Credit credits a franchisee the net sales price (which excludes any down payment and trade-in allowance) for the tools or equipment being sold. This credit is included in Paid Sales.

• Most states require that a franchisee collect and pay sales tax on purchases made by the franchisee’s customers. To the extent sales taxes are reported to Snap-on by the franchisee, they are included in Paid Sales.

• Percentage totals may not equal 100% due to rounding.

• Reported Paid Sales are based on franchisee reports submitted weekly and do not correspond exactly with the calendar year. Some weekly reports cover Paid Sales beginning a few days before the start of the calendar year; others end a few days after. In all cases, Paid Sales figures above reflect no more than one year’s Paid Sales.

• The Statement reflects the various levels of Paid Sales in all parts of the United States and the level of sales may vary based on several factors such as: your management skills, experience and business acumen, local economic conditions, local market for your Products and services, and competition.

Number and Percentage of Franchisees Reporting Per Paid Sales Level