Are you curious to know just how much franchise owners can potentially make?
Being your own boss and running a franchise has many perks, but before jumping on this venture, it’s important to understand what kind of salary potential there is in owning a franchise.
In this article, we’ll take an in-depth look into what franchises offer and how much money their owners actually make.
From understanding the cost of starting up a business with an established brand name to weighing in on the potential earnings that come with it, read on to find out more.
How Much Money Do Franchise Owners Make?
According to research conducted by Franchise Business Review, franchise business owners in the United States earn an average annual pre-tax income of $80,000.
About 8% of franchise owners bring in an annual income of more than $250,000, while 51% make less than $50,000.
The same report found that 21% of franchise opportunities lie in the restaurant industry, despite the larger initial capital requirements compared to other businesses with almost equivalent profit potential.
With franchise ownership in the restaurant sector, you can expect to make an annual income of around $82,000; however, this opportunity comes with a hefty start-up cost ranging from $100K to one million dollars.
Because of legal restrictions, franchisors are not allowed to disclose current or projected levels of their business’s income.
This is because if the contract states an earnings claim, the franchisor may be liable for any losses incurred by the franchise owner if he does not make that income.
Instead, most franchisees point to the “Article 19” section of the “Franchise Disclosure Document” (FDD) provided by the franchisor.
This section details the financial success of the brand. By looking at Article 19, franchisees can get a clearer understanding of how much money other franchise owners are making without risking personal liability.
Also Read: What Is A Franchise In Entrepreneurship?
How Much Does It Cost to Buy a Franchise?
The best place to start is by considering what you have to spend and what kind of franchising opportunities are available.
The cost to purchase a franchise varies depending on the brand. It can range from a few thousand dollars to several million.
Some of the most expensive franchise opportunities require an up-front cost of $500K or more, while others start at a couple of thousand dollars.
It’s important to note that the initial fee is only a fraction of what you will spend in total on opening and running your business.
On the other hand, the less-priced franchises come with less name recognition or are just less expensive due to the strategy of the franchisor.
Most franchises come with varying degrees of support, and your initial investment may mirror the level of training and support you’re hoping to receive in exchange.
In addition, you may be required to pay additional fees such as royalties and advertising fees.
While franchisors typically do not charge interest on the money borrowed from them, it is important to consider if that cost would be factored into your success rate.
What Factors Impact Franchise Earnings?
Profits are highly variable and depend on a number of factors. Some of the main factors that can have an impact on earnings include:
Profits are typically higher in certain fields than they are in others. This is because the costs associated with running a business in an industry like technology or hospitality are typically lower than those associated with retail and food services.
According to Forbes, franchise businesses with the highest profitability in recent years are hotels and motels, beauty salons, janitorial/cleaning services, and real estate agents and brokers.
These industries have had the best profit margins in recent years, and they are all considered to be franchise-friendly.
Since these industries typically have fewer start-up costs and higher profit margins, it may be easier for franchise owners in these industries to generate a significant return on their investment.
2. Time and Energy Spent
You will need to put more than just financial resources into your franchise if you want to achieve your goal of maximizing earnings.
Your time and effort will affect your bottom line, and committing yourself to the difficult job of building your business will most likely pay off in the end.
For example, if you are a franchise owner in the restaurant industry, you may need to work long hours and be constantly aware of new trends and customer feedback.
Similarly, if you are a franchise owner in the retail industry, you will need to be up-to-date on your product offerings and have an understanding of marketing and customer service tactics.
If you only make a monetary investment in your franchise but don’t put any effort into building the business, it is highly unlikely that you will make a profit.
3. Profit Made on the Investment
Your profit made on the investment is yet another factor to consider when deciding how much franchise owners make.
You can calculate the rate of return on investment (ROI) by subtracting the cost of the initial investment from the income generated in a given year and then dividing that number by the initial investment.
Your franchise may be making a lot of money, but if you are reinvesting that money into your business or aren’t paying yourself an acceptable amount, your return on investment (ROI) may be low.
It is important to note that ROI depends on several factors, such as start-up costs and overhead expenses, as well as the amount of time and effort you are willing to put into growing your business.
By taking the time to recoup investment costs and invest in your own future, you can maximize your profit on the investment.
4. The Franchise Owner’s Business Expertise
The success of your franchise will depend largely on your business expertise.
Franchise owners who are experienced in the industry and understand how to leverage their resources and maximize profits will be more successful than those who lack this knowledge.
For example, if you have a marketing background, you may be able to create targeted campaigns that bring in more customers.
On the other hand, if you have a finance background, you may be able to identify areas of cost savings that can help your business thrive.
Having expertise in running a business and understanding how to maximize profits is not only important for franchise owners but also essential for any entrepreneur.
5. Workforce Management
Franchise owners must also know how to hire and manage their workforce. Having a team of motivated and competent employees is key to making your business successful.
Franchise owners should be able to motivate the people working for them and provide clear direction and feedback on their performance.
Knowing when to delegate tasks can help franchise owners free up their time for other important tasks, such as managing customer relations or strategizing for growth.
Finally, franchise owners should also be knowledgeable about labor laws and regulations, as well as best practices in employee management.
6. Stock Control
Having a good understanding of stock control is also an important factor in how much franchise owners make.
Being able to accurately forecast and plan for stock needs, as well as manage inventory, can ensure that the business has enough products to meet customer demand without overstocking or running out of goods.
Franchise owners should be able to quickly identify market trends and adjust their inventory accordingly.
Understanding when to buy, how much to order, and what items will be most profitable also plays an important role in maximizing profits.
The location of your franchise can also have an impact on how much your franchise makes. Having a prime location that is easily accessible and visible to potential customers can help boost profits.
However, the costs associated with this kind of location are usually higher than setting up shop in an area with lower foot traffic or visibility.
Franchise owners should carefully consider the pros and cons of each potential location before making a decision.
Ideally, franchise owners should look for locations that offer both high visibility and are profitable at the same time.
This can be a difficult balance to strike, but if done correctly, it can make all the difference in how much a franchise owner makes.
Read: Franchise Vs. Franchisee
The 80/20 Rule and How It Impacts Income Data
One of the most important rules to remember when looking at income data for franchise owners is the 80/20 rule.
This rule states that only around 20% of franchises see meteoric success, and it’s the success stories of these franchises that fuel the overall statistics.
The other 80% of franchises may experience success, but it is usually more slow and steady than the 20% who hit it big.
The average franchise owner makes a good living, but their income data will be much lower than those of truly successful franchises.
This means that the average income data for franchise owners should not be taken at face value, as it may not reflect your own experience.
Being a successful franchise owner takes hard work and dedication, and only those who are truly passionate about their business will have the ability to make it big.
Ultimately, the amount of money franchise owners depends on many factors.
It is impossible to predict exactly how much you could make as a franchise owner, but the average income data suggests that it is possible to make around $80,000 a year.
In order to maximize profits, franchise owners should have a good understanding of marketing, workforce management, stock control, and location.
Amit Gupta is the founder of DrFranchises – a digital marketing agency that helps brands rank better on Google Maps through local SEO strategies. Amit has over 11 years of experience in digital marketing, SEO, email marketing, and social media marketing. He’s also the owner of multiple franchises and has helped countless brands achieve success online. When he’s not working, Amit can be found playing with his dog.