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Initial investment in a center was €300,000 (see Exhibit 9). This small investment was not sufficiently attractive for Private Equity or Venture Capital companies, so the franchisees sought funds from banks, family, or friends. Vitalia’s management set up a business plan based on their experience and adapted it to each individual franchisee’s particular case, thereby ensuring profitability. They also conducted a study of costs and profitability of each new service before adding it to the portfolio of the centers. The business plan established the following parameters:
The average capacity was 65 users (capacity being the maximum concurrent occupancy, in accordance with local regulations). The centers opened with an average of 10 users (requiring significant prior marketing) and their typical rate of expansion was 2 additional users per month.
The average starting price per user was €900 monthly, but this rose in subsequent months due to the addition of new services as the user adapts to the center.
The progressive nature of user acquisition and the high fixed costs mean that the break-even point, occurring at around 35 clients, was not reached until early in the second year.
From that point until reaching the center’s capacity, profitability increased to 39% of EBITDA over sales (see Exhibit 10 for projection of center results over 10 years). The result was a payback on investment in less than three years, and a Net Present Value (NPV) of €2.6M (see Exhibit 11). To facilitate bank financing, Vitalia established partnership agreements for all its franchisees with Spanish financial institutions.
The central franchisor earns revenue in several ways:
Operational royalty: 5% of the franchises’ sales
Advertising royalty: 1% of franchises’ sales, for investments in nationwide brand advertising.
Franchise entry fee: €28,000
Provision of services to franchises, such as recruitment, training and consulting
External consultancy: providing consultancy in the care of the elderly to entities outside the franchise network
Currently, its main income was from entry fees, as Vitalia was in the initial stage of franchise activity. However, as a greater number of centers open, royalties would become a larger and more stable source of income (see Exhibit 12).
Vitalia, in conjunction with “Direction” an interactive design consultancy (http://www.direction.es/), designed and developed a web-enabled digital health care system, based on the Hoffmann Method. This system allowed Vitalia’s multidisciplinary teams to sift, sort, and analyze the data from electronic patient records; for example, to better manage blood glucose and blood pressure levels for diabetic patients. Vitalia believed that these electronic patient records could reduce costs and improve the level of care provided.
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