How Much Do Franchise Owners Make?
The thought of realizing the American dream by owning a business and being your own boss is an enticing prospect for millions of Americans. Unfortunately, a lot of people are not always sure where or how to start. One of the most convenient paths to small business ownership in the United States is investing in a franchise. A franchise can be understood as a licensing agreement that enables a party (franchisee) to have access to proprietary knowledge, trademarks, and processes of an already existing business (franchisor). The license also allows the franchisee to operate under the franchisor's name. The franchisee pays an initial start-up fee and an annual franchise fee in exchange.
But how much money do franchise owners really make? This is a question that almost everyone thinking of buying a franchise asks. Unfortunately, there is no simple answer to this question. In any case, most franchisors avoid disclosing this kind of information to shield themselves from litigation. This is because if a franchisor promises a given figure and the franchisee is not able to achieve it, the franchisor may face a lawsuit. For this reason, most franchisors only point to item 19 of the franchise disclosure agreement (FDD). Item 19 of the FDD sets out the financial performance of a franchise and provides a glimpse of the average revenue that a franchise business owner can make.
Understanding what you can earn as a franchise business owner is quite situational. This is because the franchise industry has dozens of business concepts with varying revenue potential and operational costs. However, researchers have some insight into the income of a typical franchise owner. However, it is important to note that the available information is quite vague.
The Numbers
Some researchers have tried to crunch the numbers with the aim of helping potential franchise owners get an idea of the income that they can expect by buying a franchise. According to a survey done by Franchise Business Review involving 28,500 franchise owners, the average pre-tax annual income of franchise owners is about 80,000 dollars. However, this number should be taken with a grain of salt bearing in mind that it could be inflated by high incomes of a few top performers. When researchers accounted for the inflations caused by the few top franchises, it was established that the average annual income of 51 percent of franchisees is less than 50,000 dollars. The study also found that only 7 percent of franchise owners earn over 250,000 dollars a year.
The survey by Franchise Business Review also found that about 21 percent of franchise opportunities are in the quick-service restaurants' industry. This is despite the fact that restaurant businesses require a bigger initial investment compared to some other businesses with almost similar profit potential. On average, franchise owners in the restaurant industry take home about 82,000 dollars a year. However, the start-up cost can be anywhere between 100,000 dollars and a million dollars.
Factors That Can Influence What a Franchise Owner Gets
Clearly, determining how much you are going to make as a prospective franchisee can be quite a daunting task. The truth is that it is very unlikely that any two franchise owners are going to make exactly the same amount of money in a given year. Some of the factors that influence the profitability of a franchise include:
Business Expertise of the Franchise Owner
Of course, one of the main benefits of buying a franchise is that you will benefit from the franchisor's expertise, leadership, and guidance. However, like in any other business, your own work ethic and business knowledge will significantly influence your success. The more knowledgeable and hardworking you are, the more likely it is for you to succeed as a small business owner.
Stock Control
When you buy a franchise the franchisee will probably advise you on controlling stock to minimize inventory cost, meet client demand, and ensure adequate stock turn. But your profits can also rely on your ability to minimize costs. If you are committed to minimizing operational costs without compromising on the quality of services, then you can achieve higher business profit.
Workforce
Inasmuch as you are going to benefit from the loyalty of the franchisor's customer base, you also have to do your bit to keep them coming back. To this end, you need to hire qualified people who can provide quality products and manage business operations properly.
The Bottom Line
In a nutshell, it is apparent that buying a franchise is quite a great idea for people who would like to become small business owners at the minimum risk possible. This is because a franchise enables new business owners to benefit from the brand reputation that a franchisor has taken dozens of years to build. It also gives the franchisees access to proprietary knowledge and processes of the franchisor. Besides, if you get everything right, a franchise can be a great way for you to make money and live the American dream.