How Much Money Will I Make As A Franchisee?

05/02/2018 08:00 | Start a business

Franchise earnings

If you’re considering a leap into the franchise world, you’ll have the ability to generate your own income, rather than a fixed salary like an employee. This will vary depending on how much time you put into the business, the sector, your overheads, the franchisor fee, and other costs. However, one of the leading advantages of owning a franchise is that you’ll have a high degree of control over how much you earn, as this will reflect how much time and effort you put into the business.

The facts about franchisees’ earnings

According to research by the British Franchise Association (bfa), the franchise industry contributes more than £15 billion to the UK economy, with almost a 1,000 franchise brands in operation by 2015. In fact, the bfa's research found that there were close to 40,000 outlets and more than 620,000 employees across the sector, which represents a 70% rise in employment compared with ten years earlier. This research also found that 45% of franchise business had a turnover more than £500,000 per year, while only 3% had a turnover below £50,000 per year. Better still, the bfa found that in a survey of 338 franchises, only three were making a loss, showing the industry's robustness.

Annual income of franchises

Because the industry is already so vast, it can be difficult to determine the average mean or median earnings of franchises. However, many owners of the most profitable franchises can achieve a decent income of £50,000 or more a year. For example, 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. Or 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, and some of its franchisees generate an income of over £75,000 a year.

These are just a couple of examples of networks where franchisees can make a decent return from their franchise cost, depending on their financial goals. So, here are some further tips on how much money you could make as a franchisee.

  • How many hours are you willing to work?

    Your earnings will depend on how much time you’re willing to invest in your new franchise business. For example, franchisees of the most profitable franchises will often work full-time, while others may choose a part-time or seasonal franchise so they can continue with other commitments. Often, in the early stages of the business, you may need to put in some extra hours to get your new business off the ground. However, you should still expect a considerable amount of training and support from your franchisor, especially in the early days when you’ll need to familiarise yourself with the network’s technology and processes.
     
  • How can you make the most of your skills and experience?

    If you’re planning on owning a franchise in a sector you're unfamiliar with; you'll spend much more time learning about the business model and the target market. However, if you choose an industry that you have experience in, you can put all your knowledge and skills into the business to maximise its growth potential. For example, if you were a tutor with formal academic qualifications and years of experience, you’d probably be much better placed to run an education-themed franchise than someone with no experience in this sector.
     
  • Your franchisor’s projections

    Usually, franchisors will publish the projected earnings of a new franchisee, which will be based on the income of its 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 will have an incentive to publicise the incomes of its most profitable franchises, although it should be clear that these incomes only represent the best-performing franchises.

    It’s a good idea to consult an accountant to scrutinise these projections so you can get an independent professional opinion to determine how realistic and achievable they are. Ideally, your business plan should forecast profitability within about 1 to 2 years, which will give you enough time to get the business off the ground, although this will depend on the size of the franchise and the sector.
     
  • Your overheads

    When owning a franchise, the cost of rent, supplies and other services will also have a significant impact on your revenue. Low-cost franchises may be able to generate a profit with somewhat lower sales volumes, whereas franchises in prime locations with high rents will need much higher sales to cover their costs and become profitable.

    Interest repayable on loans will reduce your net profits too, so consider how much of your own money you can afford to put into the franchise cost. Your prices will also need to be set so that they deliver the maximum return on your investment: not too high to deter customers, but not too low that you can’t cover your overheads and achieve a profit.

The franchisor’s fee

Research from the bfa has revealed that the average fee franchisor’s charge to franchisees is 11.7% of sales, and the majority of franchisors charge a fixed fee. One of the advantages of a fixed fee structure is that it incentivises the franchisor to provide more training and support to help the franchisee become profitable. Clearly, the higher the profits, the more money the franchisor will earn.

If your revenue suddenly falls, however, your franchisor fee will also go down, so the royalty is always aligned with how well your business is performing. Contrast this with a fixed fee, where you may end up paying a lower proportion of your sales as your business grows, or you could end up with a higher franchise cost than you can afford during more challenging times, depending on the fee. Bear in mind that if your franchise fee is very low, you may not get enough training and support to help your business achieve its potential.

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