Signal Franchise Cost Is Well Worth Profit Potential (2023)
Written by: Vetted Biz Franchise Research Team
Last Updated by
Ailen Faiad: January 25, 2023
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This article is based on its 2022 FDD.
A Signal franchise provides security services that include patrol and dedicated service. Specifically, Signal’s locations engage in the provision of onsite and off-site surveillance, executive security services, and security consulting services for contracting clients. Signal 88 is a security company that was founded in 2003 by Reed Nyfler. McCarthy Capital Fund V is a minority investment partner for the company.
“According to an all-encompassing white paper by Robert H. Perry, a security industry watcher and transactional enabler, Signal 88 is shaking up a large pond populated by a handful of very large fish. Outsourced security makes up $23 billion of the $43 billion market, and three large players make up 44 percent of that sub group,” reads a FranchiseTimes article. Let’s see more about this franchise.
Contents
How Much Is a Signal Franchise?
The initial Signal Franchise Fee is $85,000 (minimum) to $170,000 (or higher depending on territory size). You have to pay this upfront fee when opening a Signal franchise.
Signal Franchise Cost
The estimated total investment necessary to begin the operation of a Signal franchise ranges from $93,200 – $241,150. The following costs are part of the upfront costs included in the initial investment for a Signal. 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 a Signal franchise in 2022.
| Type of expediture | Amount | To Whom Payment Is to Be Made | |
|---|---|---|---|
| Low | High | ||
| Initial Franchise Fee | $85,000 | $170,000 | Signinf of Agreement |
| Licenses | $500 | $5,850 | Prior to opening |
| Vehicle | $2,250 | $35,000 | Prior to opening |
| Equipment | $0 | $3,000 | Prior to opening |
| Transportation of vehicle | $300 | $1,500 | Prior to opening |
| Tax, Title, & License Fees | $500 | $3,500 | Prior to opening |
| Insurance | $1,000 | $3,000 | Prior to opening |
| Workers’ Compensation Insurance | $150 | $800 | As incurred |
| Wages | $0 | $10,000 | As incurred |
| Local advertising | $500 | $500 | As incurred |
| Additional funds operating capital – first 90 days | $3,000 | $8,000 | As incurred |
| Estimated total range (with minimum territory size) | $93,200 | $241,150 | |
Owning a Signal Franchise Requires Ongoing Fees
Royalty: 4% of Gross Revenues during the previous month
Support Fee: 5% of Gross Revenues during the previous month
Strategic Partner Fee: 2% of Gross Monthly Revenues derived from contract obtained directly or indirectly by efforts of Franchisor or its affiliates, as determined exclusively by Franchisor
How Much Do Signal Franchise Owners Make?
2021 Signal Median Franchise Sales: $976,258
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $167,715 | 15% | $146,438 | 3 years |
| 20% | $195,252 | 2.25 years | |
| 25% | $244,065 | 2 years |
Based on the median sales provided by Signal’s franchise locations, at an average of a 20% profit margin it will take around 2.25 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 20% profit margin, which would elongate getting a return on your investment.
Remember that our calculations are using initial investment figures for the minimum territory size, but it is possible that most franchisees have bigger territories. This will skew our calculations for this section and the next one. We recommend building your own models to see how much you can earn in your location.
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 Security and Surveillance stores; and the extent of market penetration and brand awareness that Signal stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.
Is the Signal Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for Signal 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.
Under $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.91
When you go to sell a Signal franchise based on the median multiple of .91 and net sales in 2021 of $976,258, it would sell for $888,640. This is significantly higher than the midpoint investment of $167,715.
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.
Signal (Franchisor) Income Statement Key Insights
Signal 88, LLC Consolidated Statements of Income and Changes in Member’s Equity
| 2021 | 2020 | |
|---|---|---|
| Revenues | ||
| Security Revenue – Franchisee | $165,114,406 | $133,237,915 |
| Total Security Revenue | $165,114,406 | $133,237,915 |
| Cost of revenues | ||
| Cost of service – Franchisee | $149,440,641 | $120,457,665 |
| Total cost of revenues | $149,440,641 | $120,457,665 |
| Gross profit on security revenue | $15,673,765 | $12,780,250 |
| Territory fee revenue | $7,786,327 | $3,692,060 |
| Other revenue | $356,408 | $239,240 |
| Gross profit | $23,816,500 | $16,711,550 |
| Operating expenses | ||
| Compensation expense | $7,849,456 | $5,790,357 |
| Selling, general and administrative expense | $7,150,007 | $5,944,096 |
| Depreciation and amortization expense | $188,041 | $141,861 |
| Total operating expenses | $15,187,504 | $11,876,314 |
| Income from operations | $8,628,996 | $4,835,236 |
| Other income (expense) | ||
| Interest income | $695,464 | $606,814 |
| Other expense | $(98,705) | |
| (Loss) gain on sale of property and equipment | $(56,158) | $31,531 |
| Loss on sale of company-owned franchises | $(776,631) | $(1,223,005) |
| Interest expense | $(1,883,695) | $(1,176,504) |
| Total other income (expense) | $(2,021,020) | $(1,859,869) |
| NET INCOME | $6,607,976 | $2,975,637 |
Signal is a very profitable business for the franchisor with retained earnings of $6.6 million in 2021. Compared to $2.97 million in 2020, they saw an increase of 122% from 2020 to 2021. This is a good indication of high growth as a company overall.
How Many Signal 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 | 397 | 517 | +120 |
| 2020 | 517 | 580 | +63 | |
| 2021 | 580 | 849 | +369 | |
| Company-Owned | 2019 | 0 | 0 | 0 |
| 2020 | 0 | 0 | 0 | |
| 2021 | 0 | 0 | 0 | |
| Total Outlets | 2019 | 397 | 517 | +120 |
| 2020 | 517 | 580 | +63 | |
| 2021 | 580 | 849 | +369 |
Over the last three years, the company has been in expansion with franchises opening at a rate of 184 units a year.
Conclusion
Signal was ranked as the best franchise opportunity by Entrepreneur and has good returns. We recommend talking to 3 – 5 other Signal franchisees before starting a franchise.
While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Security and Surveillance industry.
