The potentials of cooking gas business is being explored everyday by discerning entrepreneurs. If you have been thinking of starting cooking gas business but had been hindered by finance, there’s another way around it. Now, the new strategy is LPG franchise.
This LPG franchise doesn’t entirely take away all of your financial requirement in starting a cooking gas plant, but it takes the heavy load off you. However, LPG franchise goes a long way to show us what could be possible in cooking gas business.
So, this post will explain not just how to join an LPG franchise but also how to start your own LPG franchise if you have the capacity to do so. There are so many startup entrepreneurs with limited capital but who would like to invest in an LPG franchise.
And there are investors who are thinking of how to tap into the huge potential of consumer cooking gas. You can become a franchise owner and partner with small and medium investors to grow your market share.
How LPG Franchise Works
LPG Franchise is not different from other forms of franchising. Of course it’s a Franchise deal and works the same way like every other franchise. Although, there are no fixed processes on how an LPG franchise should be. You can create a model that works for you.
To become an LPG franchise owner may require you to have a licence as a gas marketer. You will also need to either build, import or partner with a technical company to build the franchise plants. You need to have some advantage in the gas market to operate an effective LPG franchise.
And it all depends on what each franchisor wants. I will also be giving you an existing example, in case you want to see what’s obtainable already. You can use the exactly example for your LPG franchise or modify it to suit you. The best LPG franchise would be the one that attracts the right kind of investors.
Whatever you choose to do, the biggest part is marking it worth the interest of the franchisees. If the target franchisees are happy to signup then you have a better franchise deal. And it will be good if we can have more LPG Franchise options for investors to tap into.
What’s LPG Franchise
Let me start by explaining LPG Franchise model biggest advantages that would make investors happy to signup. An LPG franchise gives franchisees the opportunity to own a cooking gas plant without in eating so much. The investment requirement is shared between the franchisee and the franchisor.
There’s a defined part each party to the franchise would play in the arrangement. For example, the franchisee maybe required to provide the land property, while the franchisor builds and operate the cooking gas plant. While both parties share the profit of the business based on a sharing formula.
See below some identified reasons to better LPG franchise partnership:
- Management level should be shared and not one sided
- Revenue sharing should be well balanced and not taking advantage of one of the parties
- Investment level should be shared to favour the franchisee
- Franchisor should define its target market and level of investment plan
Now let’s look at these reasons in more details. I will start with management levels. A Franchise where just one of the parties runs the business and manages all its operations doesn’t create room for transparency. And most importantly the franchisee should be made to feel involved.
Also, the revenue sharing should be based on percentage and not a fixed amount. Since the business environment can be volatile sometimes, it’s best if no party takes undue advantage over the other. Percentage sharing would give both parties equal renumeration over increase in profit or losses.
While investment commitment should be made to favour the franchisee, since he or she is the lesser partner in this LPG franchise arrangement. Also, the tenor of the agreement should be negotiable and not determined by just one party in the franchise. There should be minimum tenor limit so that both parties can negotiate from that level.
However. It’s important that a franchisor defines its target market or have different franchise levels. For example, there should be a franchise for mini gas plant investors and another one for mega gas plant investors. The different franchises should have varied conditions and benefits. One size fits all wouldn’t be ideal for LPG franchise model.
NIPCO LPG Franchise Scheme
Let me clarify further with an existing example of an LPG franchise model. Already, a company in Nigeria is offering LPG franchise. First, before you decide to go into this franchise, I advise that you hire a consultant to advise you on it.
NIPCO LPG franchise is the only cooking gas plant franchise in the country. So, that leaves us with no other option. You either go with NIPCO or you start your own. If you want to know how you can start cooking gas plant business on your own, then read my earlier article on the business.
However, this franchise doesn’t give you option to decide or negotiate how you want it to go. NIPCO has already laid down all the rules and processes. All you do is either accept them or not signup for the franchise. Below is brief description of NIPCO franchise idea, what is required from you and what NIPCO brings to the table.
- Ownership Status (Land/ Property): Dealer Owned
- Brand/LPG Skid Owner: NIPCO PLC Dealer: NIPCO Managed
- Tenor: 10 years with a roll over option.
- Management status: NIPCO Managed
- Dealer Commission: N10:00 per kg.
- Monthly sales target: 30,000kg. (Minimum)
Let me clarify the details above. In this LPG franchise with NIPCO, your most important contribution is to provide the land property for the gas plant. And obtain DPR licence (authority to construct). While NIPCO will build the plant, brand it in their name and manage the plant operations.
This franchise has a minimum tenor of 10 years. While the commission rate that would be paid to you is N10 for a kg gas sold by NIPCO. That’s what you are getting from the revenue. NIPCO will undertake all the operational cost, you only get N10 no matter how much profit is earned per kg of gas.
LPG Franchise Details Of Terms
Read below the terms of the franchise. It clearly defines what your responsibilities would be and that of NIPCO. It’s on this basis that you will sign the franchise agreement with NIPCO.
Here are dealer’s/partner’s responsibilities outlined below:
- You shall provide suitable land for LPG outlet, free from any encumbrance, trespass or any form of 3rd party liabilities.
- It’s your responsibility to handle and see to the resolution of any communal or governmental issues that would impede the smooth establishment and operation of the LPG plant.
- Its also within your purview to procure DPR ATC – authority to construct, town planning approval and any other regulatory approval required for the purposes of conducting the LPG business.
Here is what NIPCO shall be responsible for in the setup of the franchise:
- Investment relating to all civil, mechanical and electrical works on the station premises
- Provide and install requisite generator, and shall also provide water supply (borehole) with adequate storage capacity.
- Procurement and installation of the LPG skid and accessories
- NIPCO shall be responsible for the day to day management of the LPG skid outlet and shall bear all overhead costs of running the LPG plant.
- Take insurance of all the assets at the LPG plant.
- Undertake all administrative efforts and financial costs towards the procurement of DPR license, Town & Country approval and any other regulatory approval required for the purposes of conducting the LPG business.
- Maintenance and provision of spare parts for the skid.
- Full branding of the skid station by NIPCO PLC.
- Product will be solely supplied by NIPCO PLC.
How To Apply
NIPCO requires that you follow this process to apply for their LPG franchise scheme. Below are the basic requires for applying. Your application is also subject to approval by NIPCO. Who also would inspect your proposed location before accepting your franchise request.
However, it’s always advisable to conduct your own location assessment report before you start DPR licensing, which is a requirement for the NIPCO franchise. Location assessment can cost around N300,000. It helps you access both the requirement of DPR and viability of the business in that location. Hire an LPG plant consultant for this.
Requirements to apply for NIPCO LPG franchise scheme includes:
- Application letter on Company letter head
- Acceptance letter on Company letter head (after offer)
- Submission of the following documents (photocopies):
- DPR approval (ATC)
- Certificate of Incorporation, Forms C02 & C07
- Title documents of the proposed skid station location
- All the requisite safety approvals and reports
- Execution of a dealership/memorandum of agreement between NIPCO PLC and Proposed dealer
- Reasons To Join LPG Franchise
If you are wondering if LPG franchise is a good business for you, here are reasons to help you decide. There are benefits as well to enjoy from LPG franchise above the little commission you maybe getting. The most important consideration is, do you have the capital to start your own cooking gas plant?
If you have a land in a viable location and don’t have the capital, franchise maybe the best option for you if you want to tap into this business now. I strongly recommend that you conduct a location assessment to ascertain the viability of your land property for cooking gas plant before venturing into franchise.
Also, note that NIPCO would build the plant, including all the civil work. The structures won’t be taking away after 10 years of the tenor. They are all yours. You can use the proceeds from the commission to acquire your own gas plant equipments after the tenor expires.
NIPCO is a big brand in Oil and gas business, that would help you build a strong customer base in that your location in those 10 years, which you will leverage when they are gone.
Unless you have the capital to setup your own cooking gas plant, joining an LPG franchise may just be the right decision for you. Not every condition of a franchise that maybe favorable to the franchisee. If you go by NIPCO 30,000 kg minimum sales per month, then you can see that you are making N300,000 monthly, and that’s N3.6 million in one year, and N36 million in the ten years.
Even if you rent out that empty land, you may not get up to N36 million in 10 years. And the sales volume can be more. NIPCO used 30,000 kg as a minimum yardstick based on their sales experience in the industry.
You stand a better chance if your location is a prime one. That also means that NIPCO will be doing their own assessment before accepting your application. It’s better you are sure first before applying. It will save you the cost of all the required approvals NIPCO is asking for.