How Much Money Will I Make as a Franchisee?

21/03/2019 08:00 | Start a business

Franchise earnings

Originally posted on 05/02/2018. Updated on 21/03/2019.

One of the key advantages to franchising is the ability to determine your own income. Rather than receiving a fixed salary like an employee, franchisees have the power to influence their own income. This will vary depending on a range of elements, including the amount of time the franchisee dedicates to the business, the sector it is in, any overheads and the franchise fee.

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The Facts About Franchisees Earnings

According to Franchise Supermarket, the franchise industry contributes more than £15 billion to the UK economy, a figure which has increased by 46 percent over the last ten years. The number of people employed in the franchise industry has grown by a larger 70 percent in the same period, to comprise a total workforce of over 621,000 people.

There are over 44,000 franchised units across the UK, over half of which see an average turnover of more than £250,000. Franchises have a number of financial advantages over independent start-ups and, as a result, 97 percent of franchised units are currently running in profitability. Whats more, almost a third of franchisees manage more than one unit of a business and 20 percent of franchises currently in operation were set up by investors under the age of 30.

Annual Income of Franchisees

Because the industry is so vast, it is difficult to determine the average mean or median earning of franchisees. However, owners of profitable franchises can achieve an income of £50,000 or more a year. For example, Brokerplan, a finance franchise, states that its franchisees can make anywhere from £2,000 to £50,000 a year, depending on how many hours they work. Some of its franchisees generate an income of over £75,000 a year. On the other hand, the tutoring franchise Kumon states on its website that franchisees with 100-300 students can expect to earn anywhere from £30,000 to £100,000 per year after the cost of royalties and operations.

Here are some things to consider when it comes to determining your salary:

How many hours are you willing to work?

Your earnings will depend on how much time youre willing to invest in your new franchise business. While some franchisees choose to work part-time or open a seasonal franchise in order to continue with existing commitments, franchisees that belong to the most profitable businesses often work full-time.

In the early stages of the business, franchisees may need to put in some extra hours to get the new business off the ground. However, franchisors should also provide a considerable amount of training and support, especially in the early days when franchisees are still familiarising themselves with the networks technology and processes.

How can you make the most of your skills and experience?

If youre planning on owning a franchise that belongs to a sector you're unfamiliar with, you'll spend much more time learning about the business model and the target market than for other franchises. However, if you choose an industry that you have experience in, you can use your knowledge and skills to maximise the business growth potential. For example, if you were a tutor with formal academic qualifications and years of experience, youd probably be much better placed to run an education-themed franchise than someone with no experience in this sector.

Your Franchisors Projections

Usually, franchisors will publish the projected earnings of a new franchisee, and this figure will be based on the income of existing franchises. These projections should be as accurate as possible and must be based on the earnings of a franchise with similar characteristics to the one being proposed to a new franchisee.

Naturally, the franchisor might prefer to publicise the income of its most profitable franchises. As a result, its a good idea for franchisees to ask an accountant to scrutinise these projections so that they can get an independent, professional opinion to determine how realistic and achievable they are. Ideally, a business plan should forecast profitability within one to two years, which will allow enough time to get the business off the ground - but this will depend on the size of the franchise and the sector.

Your Overheads

When opening a franchise, the cost of rent, supplies and other services will have a significant impact on revenue. Any interest to be paid on business loans will make a dent in any profits too. Prices should be set to deliver the maximum return on investment and should be low enough to encourage custom but not so low that a profit cannot be paid. Low-cost franchises might be able to generate a profit with a low number of sales, while franchises in prime locations and with high rent will need a much higher amount of sales to break even.

The Franchisors Fee

There are two types of franchise fee demanded by the franchisor: a fixed fee or a percentage of the business sales. Of course, if the profitability of a business falls, a franchise paying a fixed fee could struggle to pay it, but if the same franchise was sending a percentage of its sales to the franchisor, the amount would go down in line with the overall franchise profit. Also, franchisees should bear in mind that if the franchise fee is very low, they may not get enough training and support to ensure the business achieves its potential.

In the same way, the fixed fee structure is beneficial because it incentivises the franchisor to provide more training and support to help the business become profitable the higher the profits, the more money the franchisor (and the franchisee) will earn. It is thought that the majority of franchisors charge their franchisees a percentage of their sales as a fixed fee. This averages at 11.7 percent of sales, according to the British Franchise Association (BFA).

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