Orkin Franchise Cost About The Same As Resale Value (2022)
Written by: Parth Parth
Last Updated by Facundo Bermudez: July 26, 2022
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This article is based on its 2022 FDD.
Table of Contents
Rollins, Inc. is a North American consumer and commercial services company. Through its subsidiaries, Orkin franchise, PCO Services (now called Orkin Canada), HomeTeam Pest Defense, Western Pest Services, Industrial Fumigant Company, TruTech, Critter Control, Crane, Waltham, OPC Services, PermaTreat, Northwest Exterminating, McCall Service and Clark Pest Control, as well UK subsidiaries Safeguard Pest Control, NBC Environment, Europest Environmental Services, Guardian Pest Control, Ames, and Kestrel, with Australian subsidiaries Allpest, Scientific Pest Control, Murray Pest Control, and Statewide Pest Control, and Singapore subsidiary Aardwolf Pestkare, the company provides pest control services and protection against termite damage, rodents and insects to over 2 million customers in the US, Canada, Mexico, Central America, the Caribbean, the Middle East, and Asia from over 500 locations.
In this article, we will look at Rollins’ American subsidiary, Orkin’s Franchises.
An Orkin Franchise is a business that provides professional pest control services and termite control services for residential homes and commercial and institutional buildings.
How is Orkin Franchise Positioned in the Pest Control Industry?
This industry comprises establishments primarily engaged in exterminating and controlling birds, mosquitoes, rodents, termites, and other insects and pests (except for crop production and forestry production). Establishments providing fumigation services are included in this industry.
When purchasing a pest control company, one of the biggest aspects to consider is what kind of established customer base you’re getting with your purchase; and keep in mind there will be some attrition during the transition period. You will be essentially buying customers along with inventory and human capital. Figure out how many services you’ll need each quarter to break even, and then how many you need to be profitable. Is this number above or below the number of customers you have to service? Additionally, you’ll want to pay close attention to customer retention rates. Does this potential company have a high turnover in its customer base, or is more secure and established. Generally speaking, a retention rate of over 70% is a good number.
High profit has also attracted new operators to the industry. A significant share of residential and commercial pest-control service revenue is driven by repeat customers. Environmental concerns have been playing a major role in the performance of operators. After the facilitation of vaccines, the economy is expected to fully return. Weather is an important component of industry demand. The rise in the stinkbug population is expected to continue during the period, driving demand for industry services. Profit has benefited from a decrease in fuel prices.
How Much is an Orkin Franchise?
Depending on the size of the territory in which your franchise is located, the initial franchise fee will be between $39,000 and $100,000, which may be discounted if you elect, and Orkin agrees to, a term for your franchise agreement less than the standard terms set forth in Exhibit 7 of the FDD or if you operated a pest or termite control business (other than under an Orkin franchise agreement) prior to the signing of the franchise agreement. You have to pay this upfront fee when opening an Orkin franchise.
Orkin Franchise Cost
The estimated initial investment to begin the operation of an Orkin Franchise ranges from $84,975 to $231,200. This sum does not include the rent for the business location or other real estate costs or the costs of purchasing any existing customer contracts of their affiliate Orkin, LLC that may be in the territory assigned to you and that you are required to purchase from Orkin, LLC, which may cost in excess of $250,000. Of your estimated initial investment, between $39,000 and $100,000, plus the cost of purchasing such customer contracts, is payable to the franchisor. The following costs are part of the upfront costs included in the initial investment for an Orkin. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy an Orkin franchise in 2022.
Estimated Initial Investment
| Type of expediture | Amount | To Whom Payment Is To Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Franchise Fee | $39,000 | $100,000 | Us |
| Customer Contracts | See Note 2 | See Note 2 | Us |
| Real Estate | See Note 3 | See Note 3 | Lessors |
| Equipment, Opening Inventory | $10,000 | $30,000 | Orkin Systems or Vendors |
| Vehicles | $13,000 | $25,000 | Vendors |
| Storefront Signage | $0 | $5,000 | Vendors |
| Computer Equipment and Software | $3,925 | $10,200 | Vendors |
| Business Licenses | $100 | $1,500 | Architects and Government agencies |
| Subtotal: Capital Investment | $66,025 | $171,700 | – |
| Initial Training | $1,000 | $4,500 | Airlines, hotels, restaurants, local transportation |
| Prepaid Insurance | $8,000 | $24,000 | Insurance Companies |
| Miscellaneous Opening Costs | $1,000 | $5,000 | Vendors |
| Additional Expenses (Three Months) | $8,750 | $25,000 | Orkin Systems, Employees, Suppliers, Vendors, Governmental Authorities and Utilities |
| Subtotal: Opening Expenses | $18,950 | $59,500 | (Excluding Customer Contracts and Real Estate) |
| Total Initial Investment | $84,975 | $231,200 | |
The notes below are taken directly from the document we reviewed*.
Note 2: If Orkin has Pest control customers in your territory, Orkin will assign the customer contracts for such Pest control customers (except for Multi-Territorial Accounts that we designate; see Item 12) to you, and you must pay, in addition to, and at the same time as, the Initial Franchise Fee, an amount derived by applying the applicable percentages set forth in Exhibit C attached to the Franchise Agreement to the annualized value of the active Pest control customer contracts that are assigned to you, as set forth in Orkin’s books and records. If Orkin has recently acquired the assets of another Orkin franchisee that previously operated in your territory, Orkin will also assign the customer contracts for the Termite customers it acquired (but not any other pre-existing Orkin Termite customers or Multi-Territorial Accounts that we designate) to you, and you must pay, in addition to, and at the same time as, the Initial Franchise Fee, an amount derived by applying the applicable percentages set forth in Exhibit C attached to the Franchise Agreement to the annualized value of the active Termite control customer contracts that are assigned to you, as set forth in Orkin’s books and records. The actual amount paid for these contracts varies based upon the number of customers in your territory, and in some cases the amount paid can exceed $250,000. Orkin will also assign to you the accounts receivable of the customers in your territory for the book value; provided, however, that the book value of accounts receivable will not include any balances over 90 days old or any balances from cancelled accounts. If you are unable to pay for these customer contracts in a lump sum, you may qualify for the financing arrangements provided by Orkin Systems through RAC to finance the 17 purchase of the customer contracts.
Note 3 If you do not currently own or lease a facility that you can use as your principal place of business, then you must purchase or lease a facility suitable for those purposes. Such facility must be located in your territory. Orkin Systems may provide advice and recommendations concerning site selection, but will not actively participate in the selection of your site, except that if we or Orkin lease a facility inside of your territory as of the effective date of your Franchise Agreement, upon our request, you will be required to assume the lease of such facility (or sublease such facility from us or Orkin) for the remainder of the then-current term of such lease or the term of your Franchise Agreement, if shorter. If the location that you choose for your facility was previously used for the operation of a Pest control or Termite control business (other than by our franchisees or Orkin), you must deliver an environmental audit of the facility and its premises to Orkin Systems before signing a lease or purchasing such a facility. Typical locations are in light industrial parks. Franchisees to date have leased facilities that are between 800 and 2500 square feet, depending on their individual circumstances and needs, and cost between $500 and $3,500 per month for rent. Your rent will vary depending on factors such as size, condition and location of the leased facility and the real estate market in general. You must not operate out of your home or garage. Your location must be connected to water and sewer systems and cannot be connected to a septic tank system or be within 500 feet of a well, unless Orkin inspects and approves your location despite the location’s noncompliance with these requirements.
Owning an Orkin Franchise Requires Ongoing Fees
Royalty: 7% of Monthly Total Net Revenues, plus possible gross-up for state or local taxes.
Advertising Fee: 2% of Monthly Total Net Revenues.
Local Marketing: 1% to 2% depending on your Annual Net Revenues.
How much do Orkin franchise owners make?
Since Orkin does not provide financials, we will calculate the Average Unit Volume using available data. In the last year of reporting, the franchises brought in profits of $9,400,000. This amounts to a median profit of $18,762.
Based on the median sales provided by Orkin’s franchise locations, at the median profit, it will take around 10 years to recoup your investment. This is longer than other franchise opportunities. You may not get the median profit, which would elongate getting a return on your investment.
Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Pest Control stores; the extent of market penetration and brand awareness that Orkin stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Orkin Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Orkin franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.
From the median profit of $18,762, if we assume there is a 12.5% profit margin, the average revenue would be $150,096.
Under $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.97
Over $5 Million Net Sales
- Estimated Selling Price = Net Sales * 1.52
When you go to sell an Orkin franchise based on the median multiple of .97 and average revenue of $150,096, it would sell for $145,593. This is just lower than the midpoint investment of $158,087.
The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.
Orkin (Franchisor) Income Statement Key Insights:
Rollins Inc. and Subsidiaries (in thousands of dollars except share information)
| For the year ended December 31, | |||
|---|---|---|---|
| 2021 | 2020 | 2019 | |
| Revenue: | |||
| Customer Services | $2,424,300 | $2,161,220 | $2,015,477 |
| COSTS AND EXPENSES | |||
| Cost of services provided (exclusive of depreciation and amortization, below) | $1,162,617 | $1,048,592 | $993,593 |
| Sales, general and administrative | $727,489 | $656,207 | $623,379 |
| Depreciation and amortization | $94,205 | $88,329 | $81,111 |
| Total Operating expenses | $1,984,311 | $1,793,128 | $1,698,083 |
| OPERATING INCOME | $439,989 | $368,092 | $317,394 |
| Interest expense, net | $830 | $5,082 | $6,917 |
| Other (income) expense, net | ($35,679) | $8,290 | $49,317 |
| CONSOLIDATED INCOME BEFORE INCOME TAXES | $474,838 | $354,720 | $261,160 |
| PROVISION FOR INCOME TAXES | $124,151 | $93,896 | $57,813 |
| NET INCOME | $350,687 | $260,824 | $203,347 |
Orkin is a very profitable business for the franchisor, with retained earnings of $350 million in 2021. Compared to $203 million in 2019, they saw an increase of 72% from 2019 to 2021. This is a good indication of high growth as a company overall.
How many Orkin units have opened and closed?
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 132 | 143 | +11 |
| 2020 | 143 | 141 | -2 | |
| 2021 | 141 | 144 | +3 | |
| Company-Owned | 2019 | 355 | 354 | -1 |
| 2020 | 354 | 355 | +1 | |
| 2021 | 355 | 357 | +2 | |
| Total Outlets | 2019 | 487 | 497 | +10 |
| 2020 | 497 | 496 | -1 | |
| 2021 | 496 | 501 | +5 |
Over the last three years, the company has been in expansion. Both franchising units and company-operated stores have increased. Over the last three years, franchises have opened at a rate of 4 units a year. This is an indicator that these stores are performing well.
Conclusion
Orkin offers people the opportunity to be a part of a business that has a good resale value. While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Pest Control Industry.
