Velofix

Velofix

What’s Velofix?  The largest mobile bike shop franchise in the world, with dozens of Mercedes Sprinter vans throughout much of North America. Founded in 2012 in Vancouver, Canada, Velofix quickly attained a position as the number-1 selling mobile bike shop franchise, beating out the likes of Beeline Bikes and Bike Doctor Mobile. With the shuttering of Beeline and the apparent stall-out of Bike Doctor Mobile, Velofix can arguably be described as the only mobile bike shop franchise in North America.

This blog post is several years in the making, with occasional updates. As an independent mobile bike shop operator, I considered Velofix in 2013. After spending what seemed like a lot of time evaluating the pros and cons of buying a turnkey mobile bike shop franchise, versus starting an independent operation, I opted to go independent. After receiving a number of inquiries about my own mobile bike shop, I thought it beneficial to some, perhaps, to share how I arrived at the decision I did. That’s morphed into this review of the mobile bike shop industry here in the States.

A common complaint about purchasing a Velofix franchise: “It’s too expensive!” Although buy-in prices can vary, it’s not unusual for a new Velofix franchise to cost $200,000 – for one van and one exclusive geographical area. Indeed, a lot of money. However, for those who’ve long been interested in opening their own dream bike shop “one day,” $200,000 is often a bargain compared to the cost of opening a brick and mortar bike shop. That said, a non-franchise mobile bike shop might be kicked-off for considerably less money.

An independent mobile bike shop can have an amazingly low cost of entry, as little as a few thousand dollars. With many such endeavors, that low cost will likely entail a considerable amount of sweat equity. If you’re a cautious risk taker and you already have a day job, but you’d like to dip your toe into the mobile bike shop ocean, starting off slow might be the perfect way to go. Keep in mind, the slow-cautious-inexpensive route might translate into a years-long slow start coupled with a lot frustration.

That said, a deeper look at Velofix:

The numbers below were published in the March, 2019, Franchise Disclosure Document for California, which may not be current. Contact Velofix directly for their most up-to-date information. The assessment that follows regards the activities of Velofix in the United States, not Canada.

As of December 31, 2018, Velofix reported a total of 113 franchises. With the bankruptcy and closure of all 104 Performance Bicycle stores in March 2019, one could propose that Velofix is now the largest bike shop chain in the United States. From zero franchises in 2015 to 113 franchises in 2018. Impressive growth.

 

 

Peak Velofix?

Beginning in 2017, growth began to slow. The expansion of Velofix, based on their own projections, has fallen somewhat considerably short the last two years. In 2017, Velofix projected the opening of 92 new franchises. At the close of 2017, only 37 franchises actually opened. The same pattern continued in 2018 with a projected 60 new franchises compared to an actual 26 new franchises. For 2019, Velofix projects 45 new franchises.

 

 

Also of note, after recording no franchise transfers in 2015 and 2016, and only one transfer in 2017, there were 8 transfers in 2018. What’s a franchise transfer? It appears to be just that, a transfer in ownership from one Velofix franchise owner to another. For all Velofix franchises open for at least a year, almost 10% were transferred in 2018. In terms of franchise appeal, an ownership transfer of a franchise for a relatively new company might not be the best of news. Or, 2018 could be an outlier in terms of those transfer numbers. We’ll reevaluate in 2020.

Financial Nuts and Bolts (2017)

A disclosure on the nuts-and-bolts numbers. I’ve not updated these since 2017. Nothing huge seemed to pop in their 2018 and 2019 numbers, so I’ve left these dated numbers here. Should that change, an update will be forthcoming. Likewise, I invite YOU to have a look at those same publicly available Franchise Disclosure Documents. It’s always possible I missed something. If I did, I’d be honored to hear from you.

Velofix Assets? At the end of 2017, Velofix reported total cash holdings of $8,164. That was 97% lower than the $248,016 reported on December 31, 2016. Accounts receivables in 2017 were $175,256, a 7% decrease from the $188,963 declared in 2016. Overall, total Velofix assets at the end of 2017 were $257,975, a 44% decrease from the $463,992 reported for the same period in 2016.

Revenues and Profits? Despite the decline in assets, total 2017 revenues were $1.57 million, an increase of 74% above the reported 2016 total revenues of $900,000. Velofix corporate profits? Up 65% in 2017 to $1,177,097 versus $713,084 in 2016.

Bicycle Industry Comparison?  There’s only one Velofix, which makes it challenging to draw an apples-to-apples comparison in terms of value. I’ll take a page out of Velofix’s book: Velofix is, indeed, a bike shop, it just happens to be mobile. With that in mind, we’ll use the estimated 3,700 (NBDA, 2016) brick and mortar bike shops as an analogue. The numbers used here were derived from the National Bicycle Dealers Association (NBDA) 2017 Specialty Bicycle Retail Study that collected detailed information on 332 specialty bicycle retailers.

For comparative purposes, the average annual gross revenue of a single brick and mortar bike shop in the United States in 2016, the most recent year of available data, was $1,067,550. Summed-up, the average brick and mortar bike shop grossed more revenue than Velofix-corporate in 2016.

Average Estimated Gross Revenue for a Velofix Franchise?

Perhaps the most important metric reported in the Velofix Franchise Disclosure Document: the amount of revenue generated by existing (i.e., not-new) franchises. In 2016, the total amount of all revenue received from “Continuing franchise fees,” as declared on the 2017 Velofix Franchise Disclosure Document (page 66) was $122,246.  That amount was presumably received from the 10 franchises in existence at the start of 2016.  Not to be confused with the revenue received from new 2016 franchises, which is declared separately under “Initial franchise fees.” Back to the continuing franchise fee total of $122,246. That amount, divided by the 10 pre-existing franchises comes to $12,225, which represents the average estimated amount of revenue received by Velofix corporate from each franchise. That $12,225 is likely the 8% royalty fee assessed to each of those 10 franchises. Time for some dangerous reverse-engineered math. If one divides the $12,225 by 8%, that might be a proxy-estimate of the average total gross revenue for each of those 10 franchises in 2016. That number? $152,808.

That’s an important number. For dramatic emphasis: $152,808.

Was $152,808 the actual average per-franchise gross revenue in 2016?  Ultimately, I’ve no idea. That’s a shoot-from-the-hip guess. It shouldn’t be interpreted as a verified number, because it’s not.  For the actual per-franchise average gross revenue, ask Velofix.

With that said, let’s trudge forward.

The same calculations for 2017 and 2018:

For 2017, the total amount of continuing franchise fees more than doubled to $323,000. Huge growth! However, there were a lot more franchises in 2017, which totaled 50. If the $323,000 of revenue represented the collective 8% royalty-fee assessments paid by those 50 non-new franchises, that’s an average of $6,460 per franchise. Using the same calculation as above, the 2017 average franchise gross revenue is estimated at $80,750 (X=$6,460/0.08), before expenses.

In 2018, the total continuing franchise fees increased again, this time $473,000. As with 2017, there were more franchises, in this case 87.  The same reverse-engineered estimated average gross revenue for each of the 87 franchises in 2018 totaled $67,960 ($473,000/87 = $5,437 per franchise, then $5,437/.08 = $67,960).

If those per-franchise revenue estimates are correct, a downward trend since 2016.

 

 

If you buy a Velofix franchise, how much will you make?

First and foremost, results vary.

That said, let’s return to the most recent franchise-revenue estimate of $67,960, which we’ll round to $68,000 (see above). Again, that’s an estimate, which is based on Velofix’s 2018 Franchise Disclosure Document data.

If the hypothetical Velofix franchisee had $68,000 in gross annual revenues in 2018, what amount of that represented the net profit? Businesses cost money. A Velofix franchisee owes money to Velofix as well as many other obligations: mechanic salary(ies), payroll tax, auto insurance, liability insurance, unemployment insurance, loan/lease payments, fuel, commercial storage space, training and continuing education, and other business-related obligations. These numbers assume no calls to the Velofix Client Services Center, no audit, no additional training, and no Velofix conference, all of which entail additional costs:

Estimated Annual Gross Revenue = $68,000.

Velofix annual royalty fees owed on revenue of $68,000 = $5,440.

Required annual branding fund contribution = $1,360.

Required annual advertising = $1,360.

Salary for one mechanic = $29,370 (mean annual salary of a bike mechanic in 2017, as reported by the U.S. Bureau of Labor Statistics).

Required Federal payroll tax (6.2% of $29,370) = $1,821.

Small business loan monthly payment, based on a $50,000 up-front payment to Velofix, supplemented by a $150,000 loan with a 5% interest rate and a 10-year repayment schedule = $19,092.

Van fuel (15,000 annual miles at a generous 20 miles per gallon, $2.5 per-gallon diesel cost): $1,875

Mercedes routine maintenance, one service per year (those diesel Mercedes vans need only one oil change per 20,000 miles): $100

Commercial storage unit as required by Quality Bicycle Products, typically a minimum fee of $50 per month: $600

Auto insurance at $200 per month: $1,200.

Unemployment insurance: $300.

Business liability and umbrella insurance (don’t not have umbrella insurance) = $1,000.

Bicycle inventory, parts & accessories replenishment estimated at $500 per month = $6,000

Other = ?

We’ll stop there. The hypothetical earnings and expenses leaves the average Velofix franchisee with about $1,000 in debt for a year’s worth of work. That’s after a $50,000 down payment. If that same franchisee was to finance more of the $200,000 cost, the Velofix return-on-investment quickly turns negative.

For comparative purposes, had a Velofix franchisee invested that same $50,000 down payment in a conservative stock-market index fund with a 2.5% dividend, that would have netted $1,250 a year in dividend payments. Plus, you’d still have the full value of that equity index mutual fund.

Does This Matter?

If you’re planning to pay $200,000 for a franchise, it probably does matter. You’re pre-paying for a turn-key operation that’s hitched to a corporate reputation backed, hopefully, with a solid financial foundation. The worst-case scenario? The corporation that sold you a franchise goes out of business. Some might suggest that’s essentially what happened to those who purchased Beeline Bike franchises.

 

Other Numbers to Take Into Consideration:

 

Only One Van. 

The hypothetical numbers, above, regard only a single Velofix van. Some Velofix franchises have more than one van, including those based in Minnesota (two vans) and “DMV,” also known as the District of Colombia, Maryland, and Virginia franchise (two vans). For franchises with two or more vans, the potential to earn more money is greater. But the operational costs are, likewise, higher. Based on the revenue estimates here, it’s possible that a Velofix franchise owner who owns two or more vans might make even less money than an owner who has only one.

Velofix debt? (2016)

Velofix typically reports loans in the hundreds of thousands of dollars each year. For example, in 2016, “Loans to related parties” totaled $557,167. Also in 2016, “Due to related parties” loans totaled an additional $418,835. Those two loans totaled nearly $1 million. Similar loans were reported in 2017, which totaled $424,375.

Is Velofix profitable?

Yes, at the corporate level.

Should they be more profitable? For a company that’s been in business for eight years with what many might perceive as modest profits, a not insignificant amount of debt, and recent over-projections and under-deliveries, perhaps.

What’s Velofix Going to Cost? (2017 numbers)

The Canadian-headquartered Velofix is the upscale Mercedes option of the three mobile bike shops, costing between $169,200 and $202,700. A breakdown of the costs:

$25,000 franchise fee (a renewal fee of $7,500 after five years)

$50,000 (roughly) for a Mercedes Sprinter van.

$47,000 to $52,000 for the modifications needed to the required Mercedes Sprinter van.

$12,500 for the initial required inventory, purchased through a company called “Yellow Jersey and Broken Spoke,” which is affiliated with Velofix.

$2,200 “Velonet” set-up fee related to Velofix’s online online management system software (one-time fee).

Required Promotional Kit: $3,000.

$500 to $1,000 for the required Velofix uniforms for all employees.

8% monthly royalty fee based on gross sales. Incidentally, according to the Velofix Franchise Disclosure Document: “If there is a Force Majeure event that prevents you from operating your Velofix Business, you must continue to pay the 8% royalty fee during the period in which the Business is not operational based on the Gross Sales of the Business for the 4 week period immediately preceding the disruption of operations.” That seems to imply that if something goes wrong for the franchisee, and you need to take a break from your business, Velofix reserves the right to continue to charge the franchisee the most recent 8% monthly royalty, hypothetically, in perpetuity.

2% monthly “Branding Fund Contribution” assessment, based on gross sales.

2% monthly “Local Advertising” fee, also based on gross sales.

$105 monthly Velonet user fee.

$49.95 monthly “Fleet Management System” charge.

$600 for additional (per Velofix’s discretion) training.

$150 to $350 for optional on-going training.

$750 to $1500 for estimated convention-related fees. The fine-print of the convention assessment: “You must pay us a registration fee for attendance at any annual convention that we may hold from time to time for our franchisees, whether or not you attend such annual convention.”

$10,000 transfer fee, which we assume means that if you’d like to sell you franchise, you’ll need to pay Velofix that amount.

69-cents a minute for “Client Services Center” fee. The presumed fee for the franchisee who calls Velofix HQ for technical and/or bike-mechanical-related assistance?

18% interest if you’re late with any of the aforementioned fees.

Full audit fee. We assume that means that if Velofix corporate has a feeling that a franchisee may not be reporting all “gross sales,” an audit can be requested, which is paid for by the franchisee.

The total start-up cost, which is estimated to vary between $169,200 and $202,700, it should be noted, also includes $15,000 to $20,000 of suggested available cash for the first three months that the business is operational.

First impression after a thorough examination of all fees and charges: That seems like a lot.

Having said all of this, Velofix continues to grow. A huge plus for Velofix, their CEO and co-founder, Chris Guillemet, who seems to have single-handedly built Velofix from a small handful of corporate-owned Sprinter vans to a North American mobile bike shop juggernaut. Chris is the Henry Ford of the mobile bike shop method. He’s obviously done great things for Velofix, and he’s also done much to foster a buzz about mobile bike shops. Even if you’re an independent mobile bike shop operator, a big thanks is owed to Chris for the work he’s done, because he’s helped you, too.

Nonetheless, some worrisome Velofix trends. Growth appears to have leveled-off. The number of new franchises has declined for each of the last two years. Most concerning, the average estimated annual revenue for each franchise has dropped, precipitously, since 2016. Lastly, the number of franchise transfers has increased at what some might see as an alarming rate. All of this begs the question: If Velofix is a great business model, why the sudden spike in franchise transfers? While Velofix has done great things by spreading the news for all mobile bike shop operators, it could likewise put a stain on the industry if the company continues to decline or, worse, go out of business.

For the betterment of all mobile bike shops, here’s to hoping Velofix pivots to the better, quickly.