Have you ever wondered how your favorite fast-food restaurant is able to maintain its uniformity across different locations? It’s all thanks to the franchise model, where a franchisor grants a franchisee the right to use its brand and business model in exchange for a fee.
But how do franchise owners get paid if the business isn’t “technically” their business? The answer is multifaceted. Most franchise owners pay an initial franchise fee during the startup phase, followed by ongoing royalties based on a percentage of their sales. In return, they get paid fixed and percentage fees based on total gross sales and other factors.
But that doesn’t mean owning a franchise can’t be extremely lucrative. The average franchise owner’s salary varies greatly depending on the franchise type, location, and other factors. However, to provide some reference, Glassdoor estimates the average annual salary to be just over $64,000, with others placing it at around $80,000.
Of course, success depends on factors like location, brand recognition, and marketing strategy. It’s a complex system, and that’s why we’re about to dive deeper into how franchise owners get paid. Then, we’ll talk about how to boost your profits and earn more as a franchise owner.
How Do Franchise Owners Get Paid?
When owning a franchise, you’re not just an employee taking home a steady paycheck at the end of the month. Instead, you’ll be earning your keep through a percentage of the money left over after the cost of running the business is taken out.
What costs are we talking about? There are natural operating fees, of course, like software, equipment, and other costs. However, it all comes down to fees. The fees that franchise owners can expect to pay are percent fees and fixed fees.
Percent fees are fees based on the total gross sales the franchise makes. Generally, these fees range from 5 to 9% and are used to cover expenses like franchise support and advertising.
While this may seem like a significant chunk of change, the benefit of joining a franchise is that marketing and brand recognition will already be handled for you.
Fixed fees, conversely, are like regular payments that franchise owners have to make at regularly timed intervals, regardless of how much revenue they’re bringing in. These fees often include royalty fees (the cost of using the franchise’s name, products, and services, which we’ll get into in just a bit) and ongoing training and support costs.
Fixed fees might seem like a lot to swallow, but they can help you make projections about your business finances and ensure that you’re always aware of what you’ll be paying.
What to Know: Percent fees are based on total gross sales, while fixed fees are set fees paid at regular intervals. By understanding these fees and how they work, franchise owners can develop a solid business plan that helps to ensure profitability and an ongoing, successful operation.
What to Consider
While owning a franchise may seem expensive, the support provided by the franchisor can be invaluable. As a franchise owner, you’ll receive training and support, access to a recognizable brand, and the opportunity to tap into an existing customer base. However, it’s important to carefully research any franchise opportunity before committing.
Other Fees Involved With Owning a Franchise
When considering owning a franchise, keeping up with the fees involved is a crucial aspect of the process. Sure, you have the advantage of owning your own business, but aside from the fees mentioned above, you must pay various fees to the franchisor to continue operating under their brand name. Here are a few of the additional fees involved.
Initial Franchise Fee
The initial franchise fee is a one-time payment made by the franchise owner to the franchisor to gain the right to use their brand name and business model. This fee covers various expenses, including training, equipment, and site selection. The initial franchise fee varies for different franchises but typically ranges from $10,000 to $50,000.
We mentioned this above, but franchisees are required to pay ongoing fees in the form of royalty payments. These payments are typically a percentage of the franchisee’s revenue and are paid monthly or quarterly. The percentage typically ranges from 4% to 8%, and it varies based on the type of franchise and the location of the business.
In addition to royalty fees, franchisees must often contribute to a marketing and advertising fund. This fund is used to create national advertising campaigns and support local marketing efforts. The advertising fee varies depending on the franchise, but it’s usually a percentage of your gross sales, typically around 2% to 4%.
What Do Franchise Owners Do?
Do franchise owners even work? You bet! However, less work is involved in creating a business model, plan, and strategy. Because all that is already in place, the work is more about finding a location, hiring employees, and managing the business for success.
Now, how do franchise owners get paid for that work? Here’s what goes into the day-to-day work behind owning a franchise (and what ultimately results in you earning more money).
Find a Location
The first thing you’ll need to do is find a good location for the business. This process can be time-consuming, as it involves researching different areas, looking at real estate listings, and negotiating leases with landlords. However, it’s a crucial part of the process, as a good location can make or break a business.
Hire & Train Employees
Once the location has been secured, hiring and training employees is next. This involves creating job listings, interviewing candidates, and selecting the best people. Once the employees have been hired, you’ll need to ensure they’re properly trained to provide excellent customer service.
Manage the Business
Finally, most of your routine and money-making activities will likely involve managing the business. This can involve everything from ordering inventory, creating marketing campaigns, and handling customer complaints. To succeed, you need to be organized, efficient, and able to juggle multiple tasks simultaneously.
Franchise Owner Salary vs. Business Owner Salary
Do these fees sound like a lot? They can be, yes. However, there are fees involved with starting and owning an independent business, too. However, we understand wanting to weigh your options. If you want to start your own business, you might wonder which path will lead to the best payday: franchising or business ownership. Let’s break it down.
Franchise owners are business owners who operate under the name and brand of a larger company. They typically pay an upfront fee for the right to use that brand, plus ongoing royalties and marketing costs. In exchange, they get access to a proven business model and a built-in customer base.
As for their salary, it varies widely depending on the industry and location, but it’s usually around $50,000 to $80,000 per year. Of course, if the franchise is successful, that salary can go up. As mentioned above, Glassdoor currently reports an average salary of just over $64,000 annually.
On the other hand, business owners who operate independently have more control over their brand and business model but also more risk. They have to pay for all their own marketing and overhead costs, make all the decisions, and build their customer base from scratch.
Their salary also varies widely depending on the industry and location, but it can be much higher than a franchise owner’s salary if the business is successful. However, it can also be much lower or even negative if the business fails. Currently, Glassdoor’s average business owner salary estimate is $71,000, which isn’t that much higher than a franchise owner salary.
So which one is right for you? It depends on your goals, personality, and financial situation.
If you want a more established brand and business model and are willing to pay the fees and follow the rules of a franchisor, franchising might be a good fit. If you’re a risk-taker who wants full control and the potential for higher rewards, independent business ownership might be the way to go.
Whichever path you choose, just make sure you’re willing to put in the hard work and dedication it takes to succeed as a business owner.
Which Types of Franchises Pay the Most?
As a franchise owner, one of the main goals is to increase profits and maximize revenue. However, not all franchise businesses pay the same amount. Some franchises have higher earning potential than others, so it’s important to explore a few types of franchises that pay the most.
Fast Food Franchises
Fast food franchises are one of the most popular franchises out there for a good reason. These food franchises have a proven business model with a loyal customer base. As a franchise owner, you’ll be able to take advantage of the brand recognition and customer loyalty that comes with fast food franchises like McDonald’s, Burger King, and KFC.
The fitness industry is booming, and with more people focusing on their health and wellness, it’s no surprise that the demand for fitness franchises is growing. As a franchise owner, you’ll be able to tap into the booming fitness industry and offer services and products that are in high demand. Fitness franchises like Anytime Fitness and OrangeTheory offer a great return on investment.
Home Services Franchises
Home services franchises offer a unique opportunity to tap into a vast market with high demand. These franchises, such as MaidPro, Molly Maid, and Mr. Handyman, offer various home maintenance, cleaning, and repair services. You can take advantage of these high-demand services as a franchise owner and make a good living.
Tips for Increasing Your Franchise Profits
Running a franchise business can be a great way to earn money and build financial stability. As with any business, there are ways to increase your profits and make the most out of your franchise endeavor. Below are some tips on increasing your franchise profits and successfully growing your business.
Tip #1: Optimize Your Marketing Strategies
Marketing is the key to drawing in customers and increasing your profits. Investing in effective marketing strategies is essential to increase your profits. This could include social media marketing, email campaigns, and influencer marketing.
When exploring marketing options, focus on the channels that your target audience is most likely to use. Leverage videos, images, and content to create engaging and informative marketing materials that will help draw in potential customers.
Tip #2: Offer Product Bundles and Packages
Another way to boost your franchise profits is by offering product bundles and packages. This allows your customers to save money while buying more products simultaneously. You could bundle complementary products together to help increase the average order value and give your customers a better value.
Tip #3: Monitor Your Operational Costs
Running a business can be expensive, so it’s essential to be mindful of your operational costs. When running a franchise (as you now know), you must pay franchisee fees, rent, electricity, employee salaries, and other expenses. By monitoring your operational costs and keeping track of how much you’re spending, you’ll be in a better position to control costs and increase your profits.
Is a Franchise Right for You?
So, are you still considering becoming a franchise owner but don’t know if it’s the right financial decision? Let’s recap how franchise owners get paid.
Typically, franchise owners make money through royalties, a percentage of their gross sales paid to the franchisor. However, remember that franchising requires a significant financial investment upfront, often ranging from tens of thousands to millions of dollars. Ask yourself if you will take that risk and make that investment.
Additionally, owning a franchise means following strict guidelines and adhering to the franchisor’s rules and regulations. Ultimately, remember that owning a franchise requires dedication, hard work, and a willingness to follow established guidelines.
Our best tip? Do your research. Then weigh the financial risks and rewards and decide if owning a franchise is right for you.
Find a Franchise
So, how do franchise owners get paid? With a lot of hard work and dedication. While there’s more to it than that, the reality is that becoming a franchise owner can be a lucrative and rewarding endeavor.
However, it’s important to consider both the pros and cons before making a decision. It’s crucial to analyze the financial, operational, and legal aspects of franchising before signing on.
Ready to get started? Find a franchise that suits your interests and goals.