Alternative CF & Partnering Models Peter Begin, Brian Nelson, Blair Koch

1. Alternative CF & Partnering ModelsPeter Begin, Brian Nelson, Blair Koch Presented at August, 2013 conference

2. Conventional CF model

3. Ideal Profile of Conventional CF

4. “Rock Star CF” Model

5. Ideal Profile of Rock Star CF

6. Economics of the 2 Models - Revenue Conventional CF Model $595/mo. 7 members (avg.) $4,165/mo./board 40% to CF = $1,666/mo $20k annual to CF 15% of gross to TAB* Earn $22.5k annually “Rock Star CF” Model $795/mo. 7 members (avg.) $5,565/mo./board 60% to CF = $3,339/mo $40k annual to CF 15% of gross to TAB* Earn $16.7k annual * Varies by contract, use a “marginal pricing approach – i.e. what is your net increase in cost to TAB - not avg cost

7. Retention rate / acquisition costs Conventional CF Model Retention rate = 65% Acquisition cost per new member = $1,500 Acq’n cost/yr = $3,675 PLUS My time doing marketing and sales “Rock Star CF” Model Retention rate = 85% Acquisition cost per new member = $500 Acq’n cost/yr = $525 NOTE: I spend very little time helping recruit

8. Economics – Net Income comparison Conventional CF Model CF makes $20k annual I earn $22.5k annually • Acq’n cost $3.6k /yr I earn $18.9k/year net PLUS My time doing marketing and sales, coaching “Rock Star CF” Model CF makes $40k annual I earn $16.5k annually • Acq’n cost $.5k /yr I earn $16.0k/year net NOTE: I spend very little time recruiting, coaching

9. Pros/Cons of Both Models Conventional CF Model Make 20% more $ But Have to do a lot more work, have to have a strong sales and CF oversight systems. Good for High D/Cs “Rock Star CF” Model Make 20% less, But Do a lot less work! Can attract higher caliber members Caution: can get burned; lose control of their book Good for High I/S

10. Conclusions

11. Why Partners vs. CF CFs don’t have skin in the game Different level of management required for CF Higher acquisition cost & at times higher turnover Partner model allows for growth & sets up for exit

12. A Partner Model Bring on up to 4 partners each owning 10% 70% to partner, 30% to business All partners work on acquisition, alone & together Managing Partner provides lots of oversight & training All partners follow the model & contribute to ongoing improvements

13. Ideal Profile MUST be able to sell People who could be franchisees on their own Bringing in a variety of backgrounds & expertise Won’t be “taking food off the table”

14. Economics per Partner • 3 boards/8 members = 24 members* • $550 month (avg.) = $13,200 month • Assume 60% of members get additional hr of coaching at $150 = total monthly dues $15,360 • 70% to partner $10,752/month, $129,024/yr • 30% to business $3,226/month, $38,707/yr • 5 partners brings $193,536 to the business * Does not include coaching only and additional consulting

15. Retention Rate/Acquisition Cost Retention rate 63% - goal is 80%+ Community retention avg. 70.9%, retention with 70+ members avg. 74.9% (2 territories) Can see the rise/fall of retention as we bring on partners and they learn the business “Cleaning house”, firing “poor” members Acquisition cost is within the range of $1K/member and decreasing

16. Pros/Cons of CF/Partner • Pros • Leveraged growth • More skills & networks • Beginning of exit in place • Company and personal income increase • Cons • Have co-owners to manage/facilitate • Risk of partner not performing & dealing w/ exit

17. Conclusion If you want more growth w/out more territory… If you want more brand awareness … If you want more company & personal income … If you want to begin planning for your exit … Stay connected with your partner(s) Stay connected with your members Know that it won’t be perfect but …

18. Selecting Your Business Model Questions to Ask:

19. Model Questions to Ask What do I want my Franchise to become in 5/10 years? Is 100% commitment required by everyone? Do I want a consulting practice? If yes, what services/items will I offer? How important is total number of members to your goal? Is my business a TAB business with consulting or a consulting business with TAB as an add on?

20. Model Questions to Ask Do I enjoy/need monitoring/oversight or coach/mentor? Do I enjoy team decision making or independent decision making most of the time? Based on the above, what type of person would I need in my business?

21. Our Model Formal ownership in the business. %’s can vary based on buy-in amount. Managing partner retains 60% interest. Partnership is awarded, not based on performance. We limited # of partners to 4. Partners buy-in using an external valuation approach (costs dollars to be a partner). Ownership is formal and corporate structure reflects this.

22. Our Model Allowed for 401(k) investment to buy partnership interest in the business. Salary structure for all partners. Medical/Benefit structure for all partners Bonus structure for managing members and obtaining new business. Contract Facilitators are used for additional expansion. More like “Rock Star” CF model.

23. Monitoring and Management • Partnerships of all types require management. • More teamwork - the better the partnership • Critical Items • Metrics and statistics • Common alignment on goals • Open dialog and discussion • Dashboard applications and financial/operational metrics need to be shared with all. • Expect high retention from your partners. It should be equal to yours.

24. Economics Be prepared for investment. Salary is a fixed cost to the business. Just like any other business, talent is expensive. Be prepared for learning curve. Can have negative impacts on ability to draw cash from the business until ramp up is achieved. Upside to the partnership comes after fixed cost is exceeded.

25. Some Final Thoughts This model type requires a long term view. Partnership and marriage have many similarities (and thankfully many differences ). “Who” you work with defines how happy you are in your business. Pick partners you have fun with and compliment your long term goals.

26. Questions??