Several years ago, my wife and I owned an online sporting goods business. We shipped a lot of products, which meant we spent a lot of money on shipping. As any online retail knows, shipping costs continually are on the rise, and people don’t like to pay those costs, especially since Amazon has trained the general public to expect free shipping on almost everything.
At the end of one month, as we were reviewing expenses and trying to figure out how to cut costs, we decided to pursue becoming owners of a UPS Store franchise. We had heard that UPS Store owners get significant discounts (essentially wholesale prices) on shipping, so we figured that having a UPS Store would help us improve our overall margins on our sporting goods business. We decided to jump into the process of learning how to become UPS Store franchisees.
Below I will describe the details of what we experienced.
In summary, based on what I learned and observed going through the process, I do not recommend purchasing a UPS Store franchise unless there are particular reasons you have that make owning a UPS Store more attractive than the scenario I will discuss here.
How Franchising Works
Starting a franchise business has both pros and cons associated with it. The major advantage of owning a business that’s part of a franchise network is that you get to take advantage of a proven system that usually has been tried repeatedly and has succeeded. Some well established franchises, like McDonald’s, are almost guaranteed to succeed. Becoming an owner of that type of franchise is usually only available to people who have already been very successful at running businesses.
There are advantages and disadvantages that exist to different extents depending upon the franchise organization and the industry being served. To give you more context for my experience vetting the UPS Store, here is a quick review of pros and cons of franchise ownership.
Pros of Franchise Ownership
Franchise businesses take advantage of a core set of business functions offered by the franchisor. These often include brand awareness and a potential already existing customer base that is familiar with the product offering, general marketing and demand generation, training and implementation of core business functions and technology systems, and professional, experienced guidance on situations you may not know how to handle well without help from the franchising organization.
Cons of Franchise Ownership
Franchises usually have more up front cost than starting your own independent business. Plus there are ongoing royalties that have to be paid to the franchisor. In the case of the UPS Store the royalties (comprised of both the standard 8.5% fee and another 2.5% for ad royalties) add up to 11% of your revenue.
Franchisors can severely limit an entrepreneur’s creativity and ability to find ways to grow the business. There are often strict requirements about which suppliers must be used, how a store or business should look, and policies governing other aspects of the business that restrict a franchise owner and can make it difficult to succed. I will explain some of the issues I found with the UPS Store as we did our research and interviewed several UPS Store franchise owners.
Franchise Ratings Don’t Tell the Whole Story
One of the reasons we were so excited about opening a UPS Store was how much the idea was touted on websites like Entrpreneur.com and other franchise media outlets. In fact, even years after we decided that owning a UPS Store was not in our best interest (for specific reasons I’ll explain below), I found Entrepreneur.com ranked it #4 on its franchise 500 list.
Because of these franchise ratings, which most often reflect simply how many new locations are being opened and other data that show success for the franchisor (not necessarily the various franchisees), there are lots of upstart entrepreneurs with little experience who jump at the chance to have their own retail location, complete with a bit, highly recognizable glowing signage, but who fail to give a hard look at the actual numbers.
The excitement we had at seeing the UPS Store promoted as such a great opportunity by a trusted, “independent” source for entrepreneurs (Entrepreneur.com) quickly gave way to a much more grounded reality as we dug into details about how the stores work and how much the owners actually make.
Buying an Existing Store Versus Opening a New Territory
As I went through the required screening interviews with the UPS Store franchise development representative, I learned about startup costs and the process, which seemed pretty straight forward. I was told that in our area (about 15 minutes south of Provo, Utah), we could expect our startup costs to be just over $200,000.
I wondered whether there might be a store in our area that might be for sale, one that I could possibly get a good deal on from someone retiring or moving, or who had some other circumstance that would make it so that their selling their franchise to us would allow us to have a good head start and reduce our risk.
I was able to find one for sale, but I was surprised to find that the asking price for the existing business (several years old) was much lower than the cost of starting a new one. My business sense made me think, “Shouldn’t a business be increasing in value, not decreasing?”
My wife and I scheduled a meeting with the couple who owned the store. We went to dinner to talk about some of the details we needed to know as part of our due diligence in potentially purchasing their business. During our meeting, my wife and I (a young couple with a two young kids at the time) described our family goals and our business aspirations in light of our interest in buying their business, and we tried as best we could to hide our excitement about the possibility of owning our own retail shipping location.
I was surprised at the response. Instead of being salesy at all, the couple came across unequivocally with a demeanor that said, “You don’t want this!” After the meeting I discussed with my wife how it seemed like they were trying to tell us to spare ourselves from the mistake they’d made.
I found out why when I looked at the financials they sent over the next day.
Owning a Chance to Make $60k Per Year?
Although it’s been more than a decade since that meeting and since we were able to look at the details of revenue, costs, and other aspects of the business, I don’t want to give too much detail that might compromise these unfortunate business owners. Nor am I unaware of the possibility that the store could have been managed under new ownership in a way that would have made it much more profitable.
However, I will say this. In this and many other situations I’ve seen with people attempting to purchase franchises, there is too often a lack of looking at the situation objectively along with not comparing it to alternatives.
In too many cases, people make the mistake of purchasing for hundreds of thousands of dollars a business that maxes out at an income of less than $100,000 per year. There are lots of different ways to calculate ROI that would tell you that’s not a good idea. If you have the skills required to run a UPS Store business, you should also be qualified to fulfill a job that makes at least $60k annually and should likely be able to find something closer to six digits. Those jobs usually don’t come with nearly the amount of stress and extra hours as owning a UPS Store franchise.
Investing lots of money into a business that doesn’t have high earning potential (more than $100,000 per year) is simply a poor decision financially.
When I looked through the financial statements of this couple and realized what they’d endured during the time they were running their store, I was heartbroken for them. I was also grateful that they didn’t seem interested in transferring their misfortune to me by misrepresenting the opportunity.
This situation is not unique. According to data reported on Balance SMB, it is estimated that 60% of UPS Store franchises do not break even. That’s not a great track record.
Interviews with UPS Store Franchise Owners
For anyone who is considering purchasing any kind of franchise, I highly recommend interviewing current or former franchise owners. The franchisor will often have a list of hand-picked franchise owners they want you to talk to. You can learn a lot from those, but I also recommend finding others to talk to, ones who are not poster children for the franchise.
In my case, I called both the existing UPS Store franchise owners. One of them tried his best to be loyal to the UPS Store while still being objective about what I’d be facing as a new franchise owner. He told me about the extent of control that UPS corporate has over
A policy had recently been put into effect that UPS Store locations could not have a visible clock in their stores. This franchisee was not happy about the policy, but had to comply to avoid penalties from the franchise auditor.
Regulations about signage, where to buy supplies, and other restrictions made him feel like he couldn’t lower his costs or find creative ways to increase his margins.
Likely the most egregious issue for me was this directive from those who provided revenue support to him. He told me that they’d recently encouraged him to use this strategy for growing (or at least not shrinking) his business, “You need to find ways to make money outside of shipping!”
The recommendations included promoting other services like copying and faxing, greeting cards, and other add-on sales items. However, in keeping with the strict franchising policy he was also severely limited in what he could offer in his store.
No candy bars.
No essential oils.
Nothing that would detract from the UPS Store brand.
UPS Store Owner Forums – What Other Franchisees Said
I had already made up my mind, deciding not to, after my interviews with existing franchise owners and my meeting with the couple whose store we had been interested in purchasing. However, to be thorough, my wife and I decided to check out reviews from other UPS Store franchise owners online. What we found was disappointing and in many other cases, heartbreaking. Surely there are people who succeed with UPS Stores, especially those who are already good at retail and who can naturally handle the restrictions while having the acument required to maximize revenue. However, we found too many stories from people who had invested their life savings or who made similar sacrifices for the privilege of owning UPS Stores, who lamented that they didn’t do more due diligence beforehand.
One of the most notorious of the complaints that I found was a lack of support from the UPS corporate, no synergy, and commonly the opposite.
Many of the store owners told about how they made great efforts to attract local clientele to come to their store, people who would pay retail shipping prices on a repeat basis. They would later find that UPS had contacted these customers and set up shipping accounts directly with them, which meant that instead of making decent margins each time they came in to ship a few packages, their revenue potential was reduced to something around $1 for handling each package and passing it on to UPS for shipping.
This habit by UPS was seen (rightly so) as cannibalization of the franchisee, their own local customers being poached in an effort to increase the profits of the franchisor. I have to agree with their assessment.
Some Resources for Researching UPS Store Franchising
I hope this description of my vetting experience has been helpful for you, whether you’re investigating getting your own UPS Store franchise or you know someone else who is. It may very well be that you can be successful, and that the model works for you, but it’s important to know what you’re up against before you make the money and time investment.
You might also be interested in a few of the resources I used to do research on UPS Store franchising, including an article from Balance SMB that evaluates pros and cons of a UPS Store franchise, an Amazon seller forum thread where the question is asked about whether buying a UPS Store to get discounted shipping rates (the same reasoning I used) is recommended, and a video review posted in 2018 by Franchise City, UPS Store owner reviews on Glassdoor.com, and a post about how much UPS Store franchises make on UnhappyFranchisee.com. The comments made in the discussion section of the Unhappy Franchisee post are very telling, as there are several franchise owners who vent the details of their respective situations.
If you are a UPS Store franchise owner or have something you want to share about the topic, feel free to comment here or contact me with your opinion.
If you are still determined to get into business by opening a UPS Store franchise, PLEASE make sure you do all the requisite due diligence first.