Going to Scale
The challenge of replicating social programs
HOMELESSNESS, illiteracy, chronic unemployment: nonprofits struggle to address society’s most intractable problems. And yet, as Bill Clinton noted, in reviewing schoolreform initiatives during his presidency, “Nearly every problem has been solved by someone, somewhere.” The frustration is that “we can’t seem to replicate [those solutions] anywhere else.”1
With a few exceptions, the nonprofit sector in the United States is comprised of cottage enterprises – thousands upon thousands of programs, each operating in a single neighborhood, in a single city or town. Often, this may be the most appropriate form of organization, but in some – perhaps many – cases, it represents a substantial loss to society overall. Time, funds, and imagination are poured into new programs that at best reinvent the wheel, while the potential of programs that have already proven their effectiveness remains sadly underdeveloped.
One impediment to replication is the prevailing bias among funders to support innovative, “breakthrough” ideas.2 Another is the fact that, for many people, the concept conjures up images of bureaucracy and centralized control. Such images are uninviting in any sphere, but they are especially problematic in the nonprofit sector, where local “ownership” by donors and volunteers plays such an important part in organizational success. Add in the fact that for many social entrepreneurs, autonomy is an important form of psychic income, and it becomes easy to understand why implementing someone else’s dream tends not to be nearly as satisfying as building one’s own.
In practice, however, replication is anything but a cookie-cutter process. The objective is to reproduce a successful program’s results, not to slavishly recreate every one of its features. At the heart of replication is the movement of an organization’s theory of change to a new location. In some cases, this might entail transferring a handful of practices from one site to another; in others, the wholesale cloning of the organization’s culture. Whatever the specifics, the right choice – including whether to replicate at all – will be strongly influenced by the complexity of the organization’s theory of change and the degree to which it can be articulated and standardized.3
Before turning to replication in the social sector, however, it is worth spending a moment on its for-profit sector analogue, franchising. Born in the 1920s, the franchise has become one of the dominant organization forms of our time, accounting today for roughly 50 percent of all U.S. retail sales. Franchise organizations align the energy and investment of local entrepreneurs with the strength of a network that may encompass hundreds or even thousands of units operating under the same trademark in different locations. While there are sharp differences between the forprofit and nonprofit sectors, which limit the analogy, franchising offers some thought-provoking lessons for social enterprises seeking to grow.4
First is the value of a proven program. Leveraging the knowledge developed by someone else can enable a new site to increase the speed of implementation and the odds of obtaining the desired outcomes. Independent start-ups in the for-profit sector face a much higher failure rate than new units in a franchise chain. The Small Business Administration estimates that approximately half of all small business start-ups fail within five years. The comparable rate for franchise units is half that, or about 25 percent. Quite simply, replication can reduce the risk of failure.
Adopting a recognized model can also make it easier to attract resources. A well-known franchise will attract customers even in a new market, because they associate the brand name with deliverables they know they can count on. Comparable benefits can accrue in the nonprofit sector. For example, prospective Habitat for Humanity volunteers know what the organization is trying to do, what to expect when they volunteer, and what the results of their work will be. Likewise, prospective donors, who want to be sure their gifts will have an impact, know that the organization is building on the experience of others who have used the same program successfully.
Finally, by virtue of being part of a larger system, local programs may gain access to resources and expertise in areas such as fundraising, human resources, and legal services that might be unaffordable for a single unit. They will also be able to tap into ideas and knowledge generated by other sites. A network provides a natural environment for experimentation and learning. McDonald’s Big Mac, Filet-O-Fish, and Egg McMuffin were all innovations conceived by local franchisees. Similarly, City Year’s Young Heroes program, which engages middle-school students in service and has spread throughout the system, was developed in Providence, R.I., not at the organization’s headquarters in Boston.
The core of a franchise is a proven (which is to say a profitable) business idea that can be replicated in multiple sites. What makes replicating social ideas so complicated, and how can the key issues be addressed?
Is Replication a Reasonable and Responsible Option?
Replicating programs that do not produce results is at best a waste of precious social resources and at worst a source of active harm to the participants. For this reason, the first question to ask is whether there is enough substantive evidence of success to justify replication.
What constitutes “enough” will vary, depending on the nature of the program, its longevity, and the scope of the contemplated replication. Expanding from 10 sites to 100 requires more proof of demonstrated success than opening a second location, while programs that truly break new ground need more evidence that the desired results can be sustained over time than those whose methods are tried-and-true.5 At a minimum, however, an organization has to be able to show that its theory of change is strong, that its initial outcomes are encouraging, and that it has systems in place to track key performance data going forward.
Acquiring evidence of success can be challenging, not least because much of the work nonprofits do involves social interventions, where outcomes are notoriously hard to define and the full effects can take years to see. Nevertheless, the issue of demonstrable results must be dealt with head-on if good decisions about investing resources in creating social change are to be made. The ability to assess (through direct measures or meaningful proxies) whether a program is generating value for its key constituents is an essential prerequisite for any discussion about replication.
Equally important is the ability to articulate the organization’s theory of change, which reflects both its view of why its program works and its understanding of the activities required to produce successful outcomes for its key constituents – recipients, donorfunders, staff, and volunteers. To illustrate, consider the problem of early-childhood literacy. An organization with a strong theory of change will be able to specify not only how it is going to affect its participants’ reading ability (through one-on-one tutoring, say), but also which of its activities are essential to create positive outcomes and how those activities must be executed. Answers to questions such as “How will the tutoring be delivered? How often? and By whom?” are, in essence, the organization’s social technology. And it is this core technology that will have to be replicated in new sites.
In some nonprofits, the organization’s culture is a key element in its theory of change. City Year is a Boston-based organization that brings together young people, ages 17 to 21, for a yearlong stint of community service in urban areas. Its culture embraces individual differences and embodies the belief that individuals can change their communities.6 This worldview, which is both an outcome of the program and a key element in making the program work, is primarily a byproduct of how the organization operates – its structures, systems, and processes, reinforced by the purposeful efforts of City Year’s leaders. Replicating the culture of an organization is a far more complicated undertaking than replicating a few program elements.
One of the key dimensions on which theories of change vary is their degree of complexity, as measured by the number of activities required to create the desired outcomes. For orga- nizations seeking to produce value on a broad array of dimensions, identifying the requisite interventions and ensuring that they are all in place is a complex undertaking. Helping to stabilize troubled families, for example, might entail the provision of counseling, day care, and housing support, as well as economic assistance and job training.
Yet even in organizations that provide seemingly simple services, the level of inherent complexity can be significant. Habitat for Humanity builds houses, but its theory of change goes well beyond construction, as Eric Duell, one of its international partners explains:
“Habitat has not chosen the easiest way to build houses! The easiest way is like the construction companies do it, with paid skilled labor and lots of it. Habitat does not work this way because the ultimate goal is ... not the house but the people who participate in the building of that house, the families who will live in that house, the society that they are a part of, and [the volunteers] participating in so many different ways.”7
The more complex an organization’s theory of change, the more difficult it is to replicate, which is why its leaders’ ability to specify the activities that create their program’s value is so important. The principle that should guide the analysis is minimum critical specification, defining the fewest program elements possible to produce the desired value. In an organization like City Year, which aspires to create value for the corps members, the community, and the private sector sponsors, many elements need to be in place. But does it matter, for example, whether all corps members wear red jackets, or companies sponsor individual teams? These were key elements of the original program, but what needs to be considered is whether they are critical to the results City Year achieves.
One way to identify the core elements of a theory of change is to ask whether varying an element would diminish the value the program creates. Consider D.A.R.E., a 15-week program taught by police officers to fifth-graders that focuses on resisting the use of drugs.8 D.A.R.E. began in Los Angeles, and as other cities became interested in it, some sites sought to change the targeted grade level (D.A.R.E. approved this). Another city wanted to reduce the length of the program to five weeks (D.A.R.E. disapproved). Yet another sought to eliminate police officers as trainers (D.A.R.E. disapproved).
With a clear understanding of its theory of change, an organization may discover that what needs replication is a piece of the program, not the entire program or the organization itself. Earth Force aims to build young people’s civic skills so that they make lasting changes in the environment and their communities. Its original growth strategy focused on creating full programs in franchise sites, but a clear-eyed picture of its theory of change led to a different approach: “packaging” a handful of tools (such as how to create and maintain youth councils) that others can use to replicate the organization’s desired outcomes.
Without a strong theory of change, replication becomes extremely difficult, because it is impossible to determine what is working and why. One of the most daunting management challenges that nonprofit executives face is determining whether the complexity of their programs is justified, or whether there is a simpler way to create the same value. And even if some dilution of value were to occur with simplification, would that be offset by the increased ease of replication? Serious thought and ongoing experimentation are essential to determine which of a program’s elements really create value and which might have little to do with results.
Going to Scale
If an organization has a clearly articulated theory of change, the potential for replication is likely to rest on the degree to which its key activities and the key components of its operating model can also be articulated and standardized. As a general principle, the greater the number of elements that can be standardized, the more likely it is that replication will succeed.
In the for-profit sector, a critical success factor in franchising is the ability to standardize the key activities in the founder’s business model. At fast-food restaurants, for example, everything from preparing the food to sweeping the floors to greeting the customers is well documented, and the knowledge required to perform those activities is codified into prescribed routines.
In the nonprofit sector, where critical knowledge is often tacit, this process is far more challenging, as the STRIVE program demonstrates. STRIVE provides three weeks of job training, focused on improving attitudes and job-readiness, to the hard-core unemployed. For those who graduate from the grueling threeweek program, STRIVE provides job placement and follow-up for two years.
A part of the original model was the “tough-but-fair” approach taken by the trainers during the program. According to Frank Horton, STRIVE’s first director of training:
“It takes the right kind of person to do this training. There are different ways, it’s not a formula – but you know it when you see it in person. Then you can mold it and shape it. The STRIVE method has been spread like an African folk tale – a combination of watching others, hearing about it, and doing it yourself. You’re not really a STRIVE trainer until you have been doing it for 18 months.”9
If this type of training truly is integral to STRIVE’s success, the organization either has to specify the characteristics its trainers must possess and standardize the process of recruiting and developing them (as it ultimately did, after allowing some of the initial expansion sites to experiment with a less “in-your-face” style of training) or accept the fact that the program will replicate very slowly.
Making the knowledge lodged in an operating model explicit is crucial to being able to transfer the model to new locations. Jumpstart matches young children who are struggling in preschool with college students (called corps members) for a one-year relationship. A program guide for corps members specifies how to develop a customized curriculum for each child and offers a range of reading activities associated with each developmental need. Jumpstart’s ability to standardize the instruction process into teachable routines, while still leaving wide degrees of latitude for individual improvisation, has been instrumental in enabling it to add new sites rapidly.
People. The skills of local site managers are often a critical ingredient in making replication work. Finding the right people to fill new positions depends on two distinct activities: (1) proper selection, and (2) training and socialization.
Selection entails having a clear understanding of the skills required to manage a site and implement the theory of change. As with the theory of change itself, this involves being explicit about what is required. Training can then be used to fill any skill gaps and/or to inculcate the culture of the program into new managers. The importance of acculturation often leads organizations to believe they must promote from within, since “people from the outside just don’t get the it of our program.” Oftentimes, however, an organization’s reliance on insiders reflects nothing more than the fact that the tacit knowledge in its operating model has not yet been made explicit.
Context. Every program starts off somewhere, and the effectiveness of its operating model is often context dependent. Summerbridge prepares talented youngsters from diverse backgrounds to succeed in school. The intensive summer program was initially hosted in independent schools, and when the organization tried to present it in public schools, the model proved difficult to implement.10 Board members debated the causes and consequences; some worried that the public schools’ bureaucracy and thin resources would constrain the program, while others believed the independent schools’ attractive campuses were part of the program’s allure. Still others believed that the budgeting process would put the program at risk to a variety of political and financial forces. Ultimately, the board decided that although it would continue to experiment with alternate venues, the centerpiece of its efforts would be independent schools. Effective replication often depends on holding constant – standardizing – the context within which a program will operate.
Financial structure. A critical aspect of standardizing a program is making its underlying economics – costs as well as revenues – transparent. Programs that struggle to stay afloat, bootstrapping people and resources, and living on the edge, are not good candidates for replication, however impressive their results. Neither are organizations that cannot articulate – and replicate – the unit cost of their theory of change (the cost per child served, for example, or the cost per house built). The fact that funders are increasingly asking for performance metrics that reflect the true cost of providing programs may not only encourage such economic clarity, but also have an unintended benefit – underscoring the fact that results never come for free.
Establishing a reliable source of funding – standardizing the flow of money – increases the odds of success for two reasons. First, new leaders can direct their time and energy to building the program instead of finding new ways to raise funds. Second, it can help to minimize the pressures created by funders’ varying interests. In the case of Jumpstart, for example, some funders are interested primarily in engaging older youth in the community, while others focus on literacy (and thus the preschool tutees). The cumulative effect of such pressures can be program drift or variations in the model that may diminish results.
Sometimes standardization is possible. Habitat has a financial model that lays out how to finance construction, what can be acquired through in-kind contributions, and how to attract funds from local individuals. Similarly, City Year has clear expectations about the percentages of funding that will come from government, business, and the local community. Within the business segment, there is a standardized model for how corporate sponsors will support teams of corps members.
Service Recipients. Most theories of change are designed to affect a specific set of recipients: seventh-graders, alcoholics in recovery, homeless, working poor. The consequent tight alignment between the organization’s operating model and these intended beneficiaries makes it difficult to serve other groups unless the model is modified at the same time. STRIVE’s core job-training program is tailored to meet the needs of the hardest to employ, and its leadership monitors the performance metrics of local sites closely to see that this focus is maintained. Given its intended beneficiaries, STRIVE expects that 10 to 15 percent of the participants will drop out of the program and that, of those who complete it, only 80 percent will be placed in jobs. Higher percentages in either category would raise the possibility that a less difficult set of clients was being served. Program leaders must be careful not to drift into serving recipients to whom their theory of change does not apply.
Replicating the Operating Model
Replication requires answers to three critical questions: (1) where and how to grow; (2) what kind of network to build; and (3) what the role of the “center” needs to be. While the right answers require both good data and careful analysis, replication is basically a process of planned evolution. Many replication efforts begin with expansion to a handful of sites, which can then provide useful lessons for broader initiatives. Learning from the planned – and unplanned – experiments that occur along the way is an important part of the implementation process.
Defining the Growth Strategy. Identifying the potential demand for a program and determining where the critical ingredients for success can be found are early challenges of implementation. In developing its growth plan, STRIVE examined statistics from the 50 largest cities across the United States to identify those with (1) the highest concentration of unemployed people; (2) lack of alternative job-training providers; and (3) interested local funders. This detailed analysis led it to redouble its efforts in some of its existing markets, where there was unmet demand, as well as to prioritize new markets where there were both potential funders and an absence of alternative providers. A key element in Jumpstart’s model is the availability of Federal Work Study money, which is used to compensate the corps members. Recognizing this, Jumpstart prioritized college campuses according to the size of their work-study budgets and now has programs on 31 campuses, 20 of which are in the top 200 in terms of work-study funding. For City Year, a key criterion might be the size of a city’s business base, since corporate sponsors are an integral part of the model.
Often, careful analysis will reveal that a program has underpenetrated its current markets. While there are sometimes compelling reasons to go “national” (appealing to a corporate sponsor, for example), it is important not to overestimate the benefits – or underestimate the risks – associated with expanding to new sites. The Steppingstone Foundation is a Boston-based program that prepares motivated urban fourth- and fifth-graders for admission to and success at top independent and public-exam schools. After 10 years of operation – and the opening of a second site in Philadelphia – it was considering further expansion, until analysis demonstrated a compelling opportunity to double the size of the program at home, in Boston.
Leveraging existing networks by identifying partners who can supply essential resources is an important way to facilitate rapid growth. Citizens Schools, an innovative after-school program that addresses community needs while building student skills through hands-on experiential learning activities, is pursuing a partnership with the YMCA to replicate its program. Rather than develop stand-alone “retail” programs, a partnership with the YMCA will enable it to engage in “wholesale” distribution of the concept. Similarly, Jumpstart has been able to replicate its model quickly by working through networks of university presidents and administrators.
Even with clarity about where a program might best be replicated, it is still crucial to find local champions, who will exert the necessary energy and garner essential resources. Sometimes a program can “sell” its model to new locations by meeting with local people who can become its champions. Alternatively, local champions will sometimes identify themselves once they learn about a successful program in another city. Some of the most notable replication stories of the last decade were built on the visibility provided by public figures (Jimmy Carter’s involvement with Habitat for Humanity, for instance, and Bill Clinton’s interest in City Year) or media exposure (STRIVE, for example, was featured on 60 Minutes).
In the nonprofit sector, it is very difficult to pursue pure “push” strategies – literally taking a program to a city without local involvement and support. At the same time, even in cases where there is massive demand for the program, as was the case for STRIVE, it is vitally important that the organization has great clarity about the critical elements of its theory of change, so that it can select new sites effectively.
Designing the Network.The relationship among local affiliates and between affiliates and the national office can range from “tight” to “loose.” In a loose network, local sites operate with very little direct involvement from the center: STRIVE’s affiliates are independent entities that contract to follow certain program guidelines and meet once a year at a conference. City Year is at the other extreme: All the sites operate under one 501(c)(3) organization, and the local executive directors are all City Year employees. Extensive training, field visits, and regular participation in City Year events make this a tight network characterized by a high degree of involvement between a local site and the national organization.11
The key dimension driving the shape of the network is the degree to which the operating model can be standardized. The greater the standardization, the looser the network can be, since people are able to grasp the model quickly, and it is easy for local and national leaders to identify deviations. Conversely, when culture is an important part of the model, a tighter network is likely to be required. This does not necessarily mean that control has to emanate from the network’s center, but it is apt to involve substantial interaction between the local office and the center and among the programs (as it does, for example, at City Year).
A variety of tools, ranging from the network’s legal status to its reporting requirements to the existence – or not – of training manuals, can be used to structure the relationship between local sites and the center. Ideally, networks would be self-organizing, given the desire of most local managers to operate as autonomously as possible and the fact that central activities require additional resources. In practice, however, the challenge is to design a network that is as loose as possible yet maintains fidelity to the concept and produces results.
Striking the right balance between loose and tight is a matter of constant experimentation. There are no simple rules. Jumpstart started with an organization model similar to City Year’s and then shifted to a looser network, which relies on its university partners to manage local sites. Conversely, STRIVE started with a very loose network and then shifted to a somewhat tighter system governed by a well-defined contract. What is crucial is that the organization constantly reflect on what it is learning about replicating the theory of change and producing results.
The Role of National. However a network’s founders choose to organize its members, sooner or later they will need to confront three challenging issues: (1) ensuring quality; (2) facilitating learning; and (3) providing central services.
Ensuring quality and protecting the brand. Once a few sites have been developed, a network begins to share a common public identity, or brand. Since brands invite generalization – for good or ill – network leaders have an interest in ensuring that all the members are delivering consistent results. Dorothy Stoneman, the founder of YouthBuild, recounted the evolution of her program:
“Our initial desire was to get a good idea out there. We wanted it to become a generic concept like a library or day care. We were just trying to get resources and ideas to people. Eventually the sites told us that we needed to protect the brand. Everyone said we needed to tighten up the system.”
YouthBuild now conducts a thorough audit every two years that includes a site visit and an assessment of more than 100 indicators of operational performance. A crucial element in ensuring quality is to have a data collection system that provides evidence that a local program is delivering the theory of change with fidelity and that the program is producing results.
Facilitating learning throughout the network. The opportunity to learn from other people is one of the great benefits of a network. At Jumpstart, local executive directors talk on a conference call every week to discuss their challenges and share new ideas. At City Year, a daily newsletter reports on the events at different sites and highlights innovations across the network. Many organizations have annual meetings where peers can learn from peers. The center plays a critical role in facilitating these interactions, and local leaders tend to value them highly. Indeed, for some, it is the reason they joined the network as well as the way in which the system positions itself to improve.
Nevertheless, tension between local sites and the center is almost inevitable, because the particularities of local conditions are rarely 100 percent aligned with the national model. Sooner or later, these discrepancies will create some conflict in the system. The key question is whether the conflict is constructive – producing learning – or destructive.
Providing centralized services. The center can also play a critical role in providing functional expertise and services that local sites might not otherwise be able to obtain. Training is an important benefit for many local sites, for example, as is centralized purchasing. Similarly, the ongoing development of the program – in essence, the research and development function – is typically the province of the center.
There is a natural life cycle to the center-affiliate relationship, which makes it challenging for the center to continue to deliver value as the network evolves. The first year in which affiliates are part of the network, they cannot believe the “smarts” at national. With a year of experience under their belts, affiliates typically feel they have all the answers and begin to wonder what national has done for them lately. Over time, the center must find ways to contribute to the success of local sites.
The Paradox of Success in the Nonprofit Sector
The failure to replicate innovative social programs is usually attributed to problems of strategy and management. Much of the time, it is simply a problem of money. The fact that dollars seldom follow success is one of the most vexing challenges nonprofit leaders face. At precisely the moment when large amounts of capital would flow to a proven idea in the for-profit sector, funders in the nonprofit sector frequently back away. There are many reasons – donor fatigue, a belief that equity requires spreading money around, hesitance to make “big bets” – but the consequence is that proven solutions to pressing problems do not spread.
There are two dimensions to the economic challenges of replication. First, each new site needs resources to develop the model. Given the difficulty of raising capital, it is not surprising that there are few instances in which the center was able to provide the capital for building local sites. (In the for-profit sector, by contrast, entire chains of retail outlets, department stores, and grocery stores are funded, built, and managed by one company.) This is why successful models often build in a template for the financial structure of their new sites.
While private funders will sometimes provide seed money to stimulate the development of local programs (a $50,000 matching grant for the first two years of a site’s development, for example), they rarely supply the capital to build a network of sites. The one exception to this rule is the federal government, which sometimes supports the proliferation of successful programs. YouthBuild is a line item in the Housing and Urban Development budget, and over the past seven years more than $300 million has been devoted to supporting YouthBuild programs. Not surprisingly, many high potential nonprofits pursue strategies that involve tapping into government funding streams.
The second economic challenge is funding the national office. Local sites pay fees to the center in many networks (at Jumpstart the fee is $5,000 per year, per site), and this represents an important indicator of whether the local sites value the center. But even in loosely managed networks, these fees rarely cover the costs of the center’s operations,12 and funders are notoriously reluctant to provide support for non-programmatic activities. From a social welfare perspective, the opportunity cost of this underinvestment is huge: tens or hundreds of sites serving thousands of people without the support and management discipline that might enable them to execute more powerfully.
If replication is to occur and proven ideas are to spread, strong organizations are required both at the local level and at the center. Yet, for the most part, the funding patterns of the nonprofit sector – small grants, for short durations, focused on program work – conspire against building strong organizations. There are a few examples of funders that are supporting replication and providing adequate capital for well-conceived strategies, but many more are needed if the challenges facing our society are to be addressed.
1 Olson, Lynn. “Growing Pains,” Education Week, Nov. 2, 1994, p. 29.
2 Letts, Christine; Grossman, Alan; and Ryan, Bill. “Virtuous Capital,” Harvard Business Review, March-April 1996.
3 It is important to remember that many social ideas spread spontaneously, through the dissemination of a set of principles, the best example being Alcoholics Anonymous. Sometimes a loose “learning network” links programs doing similar things that might subscribe to common principles or goals. See Taylor, Melissa; Dees, J. Gregory; and Emerson, Jed. “The Question of Scale: Finding the Appropriate Strategy for Building on Your Success,” in Dees, J. Gregory; Emerson, Jed; and Economy, Peter, Strategic Tools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit ( John Wiley & Sons, 2002).
4 For a detailed analysis of franchising in the for-profit sector, see Bradach, Jeffrey L. Franchise Organizations (Harvard Business School Press, 1998).
5 David Hunter, director of evaluation and knowledge development at the Edna McConnell Clark Foundation, has stimulated my thinking on this subject in very helpful ways. To see how the Clark Foundation addresses this important topic, go to http://www.emcf.org.
6 See “City Year: National Expansion Strategy (A),” Harvard Business School case study, HBS 0-496-001, 1995.
7 See “Habitat for Humanity International,” Harvard Business School case study, HBS 9- 694-038, 1993.
8 See “Spreading the Gospel: D.A.R.E.,” John F. Kennedy School of Government case C16-91-1029.0.
9 See “STRIVE,” Harvard Business School case study, HBS 9-399-054, 1998.
10 See “Growing Pains: The Story of Summerbridge,” John F. Kennedy School of Government, case C16-94-1267.0, 1994.
11 For a discussion of different kinds of networks, see Grossman, Allen and Rangan, V. Kasturi. “Managing Multi-Site Nonprofits,” Nonprofit Management and Leadership 11, no. 3 (spring 2001).
12 By contrast, the typical for-profit franchisee pays from 5 to 7 percent of its revenue to the center. If its annual sales are $1 million, it is returning $50,000-$70,000 for its use of the brand and related services. In chains that do significant advertising, there are advertising fees (often 3 to 5 percent) in addition to the franchise fee.
Jeffrey L. Bradach is co-founder and managing partner of The Bridgespan Group, a nonprofit strategic consulting firm which works with nonprofit organizations and foundations. Before joining Bridgespan, he was on the faculty of the Harvard Business School, where he conducted the initial research for this article.