HireQuest Network and Industry

Comments on numerous topics related to HireQuest's business

Opening of a New Office as a Franchisee

Franchimp is a website that contains information on franchising businesses. More specifically, it has financial metrics about the individual units within different franchising networks. Things such as how much the initial investment is for opening a particular store/office and the legal document that franchisors’ send to prospective franchisees.

To open a HireQuest or Snelling franchise and offering the different types of services the company has available, a franchisee’s initial investment is estimated to be between $45,150-$145,750. It usually takes 4-12 weeks for a franchise to be opened after the agreement is signed. The investment includes a sum that must be paid upfront to HireQuest, which ranges from $3,500 to $26,000. This encompasses the initial fee that’s between $2,500 and $25,000 depending on the territory wherein the franchise is set to be opened.

The population determines whether the initial fee falls near the higher or lower bound. Territories with over 1 million people require a $25,000 fee, whereas a $2,500 fee is for territories with less than 100,000 people. Although the franchisee is who ultimately decides where to open, HireQuest’s approval is required and the team assist franchisees on the process. Finally, HireQuest generally advises taking on a lease and they are willing to help negotiate with the landlord if the franchisee requests it.

After the person pays for the initial fee, he or she is scheduled to attend training sessions, alongside employees who’ll join them in the endeavor. They attend 2 weeks of training at an operating branch within 30 days before opening their own business. Part of the instructions relate to the usage of software, for which the franchisee has to pay $1,000 upfront.

The following table groups the types of expenditure franchisees need to incur, the amount in dollars, when they are due and to whom.

After the initial fee is paid, HireQuest demands franchisees to pay other fees related to the ongoing operation as well as to punish for delays or negligence. In addition to the royalty fee, which is a percentage of gross billings or funded payroll, these are the other fees I found relevant to franchisees.

Finally, there are two things I’d like to highlight. Firstly, HireQuest mentions the possibility of them financing up to $25,000 of a franchisee’s investment, though, in rare instances, HireQuest could provide up to $100,000. Secondly, the company generally agrees with franchisees to a minimum performance standard in HireQuest Direct franchises. If franchisees do not meet their minimum yearly target, they have to pay the fee they would have paid should they’ve met the standard.

Franchises Network

When HireQuest was a private company, in 2017, the company had a total of 79 franchised locations. After the merger and integration of Command Center, rapid growth followed in the network’s store count. By mid-2024, HireQuest had 414 stores.

The following chart illustrates the number of stores opened, closed, and acquired by HireQuest for the period 2018-2024. Over the period, most of the company’s growth came from acquisitions. By this means, HireQuest added 331 franchised locations to its network, before accounting for subsequent closures thereof. Stores opened during these 6 years amounted to 89, whereas 85 franchises were closed. Of the total, 53 closures occurred in 2023 and the first semester of 2024, combined. I suspect most of discontinued branches were from acquisitions made, with MRI being the network that probably experienced the largest number of closures.

It is worth reminding the reader that HireQuest’s franchisees might operate 1 or more franchises. Therefore, the closure of a location does not necessarily imply the loss of all the revenue generated by that branch. Operators with 2 franchises might choose to discontinue one operation but keep servicing part of the customers with the continued location.

“Of these closures, 11 were in metropolitan areas where our franchisees still maintain at least one office that we expect can service customers of the closed or consolidated offices” Q2 21 10Q

Turnover and losing the customer list are the most severe threats when acquiring a franchising business. It is remarkable to observe how many of the acquired branches end up continuing operations. Based on Hermann’s general commentaries, it’d be expected to lose a high percentage of each location’s business when it’s acquired, maybe exceeding 50%. In addition to this, employee turnover, if not managed appropriately, can destroy a franchising business. It is therefore very interesting to observe how many of the acquired franchises remain open, validating Hermann’s statements.

The fact that HireQuest can acquire networks whose size is very large relative to their own speaks well about the smooth integration process. In 2019, HireQuest essentially acquired Command Center, which had a size of almost 70% that of HireQuest. Thereafter, Link and Snelling implied the acquisition of a network 50% of HireQuest’s size. In 2022, HireQuest acquired MRI, which had over 200 franchised locations, while HireQuest had around that number as well.

Notwithstanding this, acquisitions blurry the picture as to how satisfied franchisees are, for it clouds the renewal rate, which, incidentally, is not reported. I suspect that, prior to the merger, and naturally thereafter, the HireQuest Direct network has had the most satisfied franchisee base, which led to a high renewal rate. Consistent growth with no severe declines and numerous franchisees owning more than 1 branch make me think the latter might be true.

When the merger took place, many franchisees signed 5-year agreements, causing multiple renewals to be scheduled for 2024. Furthermore, when HireQuest acquired MRI, dozens of franchise agreements were discussed and rearranged. Many of MRI’s franchisees opted to have their scheduled renewal in 2024. This is something that happened with other acquisitions, though to a lesser extent. HireQuest entered 2024 with 83 renewals to be signed in the course of the year. By August, 24 offices had been closed. Depending on the dates at which these renewals are scheduled, the corresponding renewal rate.

System-Wide Sales

Prior to merging with Command Center, HireQuest had system-wide sales of $190 million. In the last fiscal year, ended in December of 2023, the company reported $605M in system-wide sales.

It’s important to note that, whereas store count increased by over 340% during the period 2018-2024, system-wide sales increased 218%. This entails that the average sales per HireQuest location, including all trademarks, have fallen quite severely. Before the merger with Command Center, each branch generated 1.95M dollars in topline, on average. During 2023, each location generated, on average, $1.4M.

Note: The chart is made by dividing system-wide sales by year-end store count.

Note: 2022’s year-end store count includes MRI’s, but not their revenue during that year, for it was acquired in the last quarter.

The following chart computes system-wide sales per HireQuest brand, and thereby business model, for the three largest contributors. Although the company shares system-sales per brand on a quarterly basis, fourth quarters are not separately disclosed. Therefore, the fourth quarter of all years are estimations.

Part of management’s strategy revolves around leveraging their large and growing network of franchises and increase offerings. Some can be offered by existing branches, whereas others may take specifically dedicated locations. HireQuest bought Dental Power’s staffing division to launch their health platform; it launched TradeCorp for highly specialized labor in the construction industry; and DriverQuest for long-haul rides. Their impact on system sales remains negligible, but nonetheless growing, especially DriverQuest and TradeCorp, which I suspect don’t require dedicated locations for them to be offered.

Followed from system-sales each brand contributes, we can observe that, during 2023, 41% of the total was generated by HireQuest Direct network. This is done while HireQuest Direct offices might represent around 30% of HireQuest’s total network. Snelling and HireQuest contributed 26% of total system-sales, and the executive and permanent placement franchises generated 31% of total.

Royalty Fees

Different brands not only carry distinguished offerings, but some aim at significantly different end markets and differ in business model. HireQuest Direct does direct dispatch and focuses on daily-pay jobs in the construction and light industrial segments. This implies a cost structure and day-to-day operation that differs from HireQuest and Snelling locations, which are focused on longer-term positions in the administrative and light industrial markets. MRI offers permanent placement services and, Nortbound, executive placement. Both aim at different markets, the method by which they earn revenue is different than that of daily labor offerings and carry different margins. Therefore, to the extent that it is possible, each business unit’s royalty fee will be separately assessed.

Low data availability impedes me from finding and computing charts illustrating accurate figures. Apart from HireQuest Direct, other brands include a large degree of estimation.