How Much Money Can I Make in Franchising?

Some franchisors are tight-lipped with this information, but there are ways to figure it out.

How Much Money Can I Make in Franchising?

Q: I’m trying to determine exactly how much money I can make with a franchise company I’m investigating, but I’m having trouble getting the franchisor to answer this question. Every time I bring it up, they avoid the topic and mention something about having rules against sharing this information. Can this be right? How am I supposed to get this information? What is a reasonable level of income to get from a franchise?

A: This is one of the real quandaries of investigating most franchises. You’re not about to invest until you know how much you can earn,and the franchisor probably has the best data to answer this question accurately, but they usually won’t tell you a thing. I agree, it doesn’t make much sense when you look at it this way.

Ideally, any franchise that wants to provide this information should put it in writing in its disclosure document, ensuring the data provided is as accurate and non-misleading as possible and clearly labeling any assumptions or qualifications on the data provided. The franchisor is free to provide whatever earnings information they want to a prospective franchisee in terms of sales, expenses, cash flow and income. Since it’s this easy, it begs the question of why more franchisors don’t do it.

The answer is two fold. First, producing an earnings claim involves effort and expense for the franchisor. Second, the results (given that they should be accurate and non-misleading) may not be attractive enough to assist in the recruiting of new franchisees.

If a franchise does not provide an earnings claim in its disclosure document, the best way to find out how much money you can make is by asking the system’s existing franchisees. Make sure you select enough franchisees at random to get a clear idea of the averages and ranges for earnings in the system.

As for your final question about what to expect in terms of earnings, I think most experts would answer this question relative to the amount of the total investment required by the franchise.Though this is often not the case in franchising, you would probably expect the income to increase exponentially as the investment required by the franchise increases.

A good rule of thumb is that you can earn10% to 15% on your money over time in a totally passive investment. Since most franchises require that you invest your time as well as your money, you should expect a return significantly higher than this level in order to justify the investment. This higher return will also offset the higher risk involved in this type of investment.

You should look for earnings of at least 30% of your total investment on an annual basis to consider any franchise as having a reasonable return. You should expect to reach this level, at the latest, by the third year of operation of the business.

Jeff Elgin
About the Author
Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

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