How much do franchisees make? That’s news that’s seldom disclosed. It’s easy to find out how much it costs to get into a franchise. It’s almost impossible to get much information about potential ROI. This makes it difficult to decide if you should or should not start a franchise business.When it comes to cost, franchisors spell it out. They openly discuss fees, royalties, and grand opening costs. And they liberally discuss how much marketing you need to get people in through the front door. However, when it comes to getting a ballpark figure on potential returns, there is an awkward silence. Franchisors simply point applicants to the Franchise Disclosure Document. This is a legal document that runs over 200 pages. It explains almost nothing about profit potential. You learn a lot about the rules, but little about whether you will make or lose money.
While item 19 of the document is supposed to offer prospects a snapshot of average revenues based on the financial performance of the franchise, the range is so large from lowest to highest as to be meaningless.
Why the Awkward Silence?
So How Much do Franchisees Make?
While it’s difficult to estimate average earnings because of the wide spectrum of concepts, Franchise Business Review, a research firm, put it around $66,000. This, however, is neither a reason for elation nor despair as many factors go into figuring out what this number means. Is it a loss, a break-even point, or a handsome profit? It all depends on the initial investment costs and overheads.
Do Franchisee’s Make Money?
Some do. Some don’t. Those who do can often make a lot.
Entrepreneur covered this inspiring story about Dean Clarino: “Currently, his first location grosses $900,000 per year, and his newer store makes $1.2 million. With 20 percent margins–incredibly high for a restaurant–he estimates profits at $400,000 per year.”
Clarino bought a Teriyaki Madness franchise in Las Vegas in 2007 and despite a complete lack of food service experience, he made his business work based on grit, determination, and hustle. He did so well, he opened two stores.
What it Takes to Succeed
There are so many factors that go into stirring up the perfect storm that it’s understandable why franchisors don’t want to talk about ROI, or even hint about what’s possible.
The key factors that determine success are elusive. For example, does the new franchisee go above and beyond marketing recommendations? After buying his first franchise, Clarino put signs everywhere, facing in all directions during the time his restaurant was under construction. His signs made diners eating in neighboring restaurants curious enough to visit his business when it opened. This blatant tactic worked so well, Clarino opened a second store four years later. This new business made $126,000 in its first month, and it him only four months to make back his investment.
Unfortunately, it’s not just the will to win that determines success. There are many other key factors.
In order to do well in your own franchise business you need the right branding, location, experience, and type of business:
1. Branding.
You need to promote a strong, recognizable brand. Ultimately, it’s not about the novelty of your idea or the high value of your product, it’s about your brand name.
2. Location.
You need to be in the right place at the right time. Yes, location. If you are not in the right place, it will take a long time for customers to find you. A store located in a low-traffic strip mall will languish in obscurity. Meanwhile, the exact same store with the same services in a busy, central location will enjoy a booming business. As in a real estate business, location is everything when it comes to owning a franchise business.
3. Business experience.
You need to have knowledge, skills, and experience in the business you’re promoting. You not only have to know the business, you have to like it. If you’re force-fitting your personality into a business model that doesn’t suit you, then you will not succeed. For instance, if you’re a nerd, brilliant at computers but quickly bored with small talk, you should not open up a restaurant or even get a retail franchise.
4. Type of business.
Some franchise concepts, like Anime Franchise Sword Art, fascinate people but may be short-lived; others are mundane, like a fast-food restaurant, but grow more popular over time in a given neighborhood.
Investigate Opportunities
Many factors go into a successful franchise business. Some are predictable; others can take you by surprise. Some can be controlled; others depend on sheer luck. If you’re interested in buying one, the best you can do is to investigate an opportunity to see if it matches up with your personality. Then if you do decide to go for it, back up your investment with a compelling vision for your small business, and a strong work ethic, and also draw on as much support as you can from the franchisor.
