Fed up with the corporate rat race? Looking to be your own boss? If so, you should consider becoming a franchise owner.
Operating a franchise is much easier than starting a business from scratch. Not only does it have a higher success rate, but it also comes with its fair share of assistance. In other words, when trying to forge the success of your business, you won’t have to walk alone.
All of that said, you might be wondering: how much does a franchise owner make? In truth, it varies. So, to help you understand how much money you can make owning a franchise, we’re going to dive a little deeper into the topic below.
How Much Does a Franchise Owner Make?
There are a number of factors that contribute to how much money a franchise owner makes. That said, there are earnings statistics available. It’s said that, on average, franchisees make around $80,000 in income every year.
Now, some make well below this, and some make well above this. Others hover close by. But, when you factor it all together, $80,000 is the average figure.
In truth, it comes down to the success of your individual franchise. The key is to spend as little money as possible while still maximizing your revenue. The more you can do this, the more money you’ll make; it’s as simple as that.
Factors That Affect a Franchise Owner’s Earnings
As was noted above, there are numerous factors that can affect a franchise owner’s earnings. We’re going to discuss the biggest of these factors below.
The Type of Franchise That’s Being Run
While all types of franchises have the potential to make great amounts of money, some types of franchises are more likely to make large amounts of money than others. This is because they have the potential for wider profit margins. Franchises with thin profit margins are always going to struggle to get past certain plateaus.
For instance, restaurant franchises tend to have thin margins. They make a lot of money but also require their owners to spend a lot of money on inventory, labor, and rent. As such, it can be difficult to get a restaurant franchise out of the red, let alone make it a financial success.
Now, this isn’t to say that restaurant franchises can’t be successful. They just have to be run extremely efficiently. And even when they’re run extremely efficiently, they still have limitations as to how much money they can bring in.
Other types of franchises, like cleaning franchises, moving franchises, and the like, have the potential to make more income. That said, their revenue isn’t as consistent.
As such, in their early days, they don’t tend to bring in a lot of money. However, as time passes and as their client base grows, they have the potential to make far more revenue than what they cost to run.
In the end, you need to weigh expenses against revenue potential. You then need to run your franchise so as to bring in as much revenue as possible.
The Franchise’s Reputation
Put simply, the more reputable the franchise, the more revenue potential it has. A McDonald’s, for example, is bound to bring in more revenue than a small fast-food restaurant that just recently franchised..
McDonald’s is a huge brand and a household name. Customers won’t think twice about going there. When it comes to the small fast-food restaurant, however, they’ll have no idea what they’re getting into. As such, they’ll be more hesitant to go there.
This stands for all industries. For example, an Anytime Fitness franchise is bound to attract more members than a small gym that just recently franchised.
Now, this doesn’t mean that you shouldn’t start franchises with smaller brands. In fact, these brands usually take a smaller cut of money than the big brands will. So, if you’re able to attract customers to them, they could actually pay huge dividends.
Note, though, that with these smaller brands, you have to work harder in order to build a customer base. This is because they don’t come with built-in reputations. You need to do your part to help build the reputation of the brand..
In the end, it’s about balance. A big brand franchise might be a safer bet; it might even make you decent money. However, if you can take a small brand franchise from little-known to popular, you could bring in substantial amounts of income.
The Location of the Franchise
Another factor that can affect the earnings of a franchise owner is the location of the franchise itself. The easier the franchise is to access and the more visible it is to passersby, the more customers it will bring in. This is particularly true of restaurants and other public-facing establishments.
Let’s say that your franchise is located on the main drag of your town. Because of this, it’s frequently seen by those passing by. It’s also convenient to get to and might even serve as an easy stop on someone’s trip to another location.
Conversely, if your franchise is tucked away in a lesser-frequented part of town, it’s not going to have many people passing by it. As such, it wouldn’t act as a convenient stop-off on a person’s way to something else. It would be something that a person would have to go out of their way for.
This is why, when starting a franchise, you need to do a geographical analysis. This will help you determine whether your prospective location is lucrative or not. Ask your franchisor for help in finding the right location for the business.
The Business Acumen of the Franchise Owner
Running a franchise requires the same general skills as running your own business. Yes, you receive some guidance along the way. However, your own business acumen will largely determine the success of your franchise.
Generally speaking, seasoned entrepreneurs make more money running franchises than new owners. There are, of course, exceptions to the rule. But business experience enables an owner to run their franchise efficiently and thus allows them to make the most profit possible.
This is why, before buying a franchise, you need to consider whether you have the business knowledge needed to run it successfully. Have you run a business before? Have you ever held a top-tier management position? Know your strengths and your weaknesses.
If not, you should reconsider starting a franchise until you’ve acquired such experience. If so, you’re likely ready to make the foray into franchise ownership.
The Quality of the Franchise’s Workforce
The quality of the franchise’s workforce or staff can make a seismic difference as well. After all, these are the individuals who are going to come into face-to-face contact with the public. Their ability to do their job well will either keep customers coming back or turn them away for good.
Not only do you want to hire employees who are good at the technical aspects of the job, but you also want to ensure that they’re friendly and personable. Their behavior will dictate the atmosphere of your establishment and could make or break its success.
So, when looking for employees, think about how wages could affect the quality of your workforce. You might have to pay a little more to retain quality employees. However, those few extra dollars an hour could pay major dividends down the road.
Your Ability to Manage Inventory
In many cases, the owner’s ability to manage inventory will have a large effect on whether a franchise makes money or not. By acquiring the right quantity of inventory, an owner can keep expenses to a minimum while still providing a high-quality product or service. If an owner buys the wrong quantity of inventory, they risk either wasting money or not having enough stock available to serve their customers’ needs.
Now, the franchisor will generally guide you through this process early on in the existence of your franchise. However, over time, you’ll learn to fine-tune the process and maximize your profits.
Maintenance Costs
There are all sorts of machines required to run a franchise smoothly. For instance, in most restaurants, you need grills, fryers, refrigerators, and a variety of other such appliances.
When these appliances are running correctly, they’re doing nothing but bringing in money. Unfortunately, these don’t always run properly. In fact, machines break down on a regular basis.
The good thing is that you can get them up and running again. The bad thing is that you have to spend money to do so. And the more money you spend, the less your profit will be at the end of the year.
So, if you want to make as much money as possible as a franchise owner, you need to keep maintenance costs to a minimum. There are several ways you could go about this.
One option is to purchase all new appliances. Yes, they’ll cost you more initially but could be less expensive in the long run.
Another option is to purchase used but high-quality equipment. Finding the right equipment can be difficult. However, if you manage to find some gems, you could save a lot of money on maintenance over the initial few years of running your franchise.
Rent/Mortgage Costs
Another factor that will affect a franchise owner’s income is the rent/mortgage costs of their building. Depending on where your franchise is located, you could be spending upwards of 5 figures a month on your rent or mortgage. That’s a seismic expense that could take a huge chunk out of your income.
Of course, if you’re going to spend this amount of money on your business property, you’ll need to make sure it’s worth it. If you’re in a particularly high-traffic area, spending a great deal of money on your rent/mortgage could benefit you. This is because you’ll stand to bring in a lot more revenue overall.
On the other hand, if you don’t bring in as much revenue as you’d hoped for, you could find yourself in the financial red. This is why, when choosing a property for your franchise, you need to prioritize geographical analysis.
Analyzing the area geographically will provide you with cold, hard data. You can use this data to make an informed choice.
Royalties
The last factor we’re going to discuss is royalties. Royalties are what the franchise owner pays to the franchisor so that the franchise owner can sell their product and utilize their brand.
Different brands charge different royalty fees. While a small, lesser-known brand might charge as little as 4%, a large, better-known brand might charge as much as 12%. The royalty fee is usually paid weekly, monthly, or quarterly, and is calculated as a percentage of gross sales.
This is clearly going to have an effect on your income. However, that doesn’t necessarily mean you should avoid high royalty fees.
Oftentimes, high royalty fees are attached to more reputable brands. So, while you may have to pay more money at the end of each week, month or quarter, your total revenue might be substantially greater than what you would have with a lesser-known brand.
Interested in Becoming a Franchise Owner?
Now that you have an answer to the question of “How much does a franchise owner make?”, you might be interested in buying a franchise of your own. If so, you’re in the right place. America’s Best Franchises can help you find franchises for sale all over the country.
It doesn’t matter the industry or the location or the amount of money you’re willing to invest, we can help you find a franchise that suits your preferences.
Learn more about starting a franchise right now!
