Franchises present an opportunity to augment your current career or start an entirely new journey. But how much do franchise owners make a year? And how much does a successful franchise owner make? Well, it depends on the nature of their business.
While fewer than half of all franchise owners (49%) make over $50,000, the nationwide average is $80,000 per year (before taxes). So where’s the discrepancy? Here are some things to consider that can impact your earnings as a franchisee.
Where Does a Franchise Owner’s Salary Come from?
How do franchise owners get paid? As a franchise owner, your salary will come from the net profits of the franchise itself. That is, whatever is left over after expenses like equipment, supplies, and fees. It’s from this net profit that you pay yourself a salary.
This means that your success is tied directly to the success of your franchise. Naturally, this provides some incentive to perform well, though your prospective earnings depend on a wider range of factors. As a general rule, you’ll have the best success if you pursue a franchise that requires low initial investment but a high probability of success.
How to Evaluate Your Earnings Potential
First, you’ll need to evaluate your earnings potential. Keep in mind that every franchise location is different, and you won’t always be able to replicate the success of every other franchise. Still, there are some ways to predict the success of your franchise, including the following:
The Franchise Disclosure Document (FDD)
Franchisors are not legally permitted to provide income forecasts. For instance, if you were to ask a franchising company what you could expect to earn, they cannot provide this information. This is mainly for their protection since there’s no way to guarantee that you’ll earn a particular salary.
But that doesn’t mean you’ll be in the dark. Franchisors are legally required to provide a franchise disclosure document (FDD), which provides an overview of the franchise and its performance. Specifically, Item 19 of the FDD will outline the brand’s financial performance and usually provide you with both net and gross numbers.
Industry Surveys and Studies
Many trade publications keep track of the earnings of prominent businesses or industries as a whole. If you’re able to locate a specific franchise in this data, you’ll have a very clear idea of your earnings potential.
You can also track trends in the industry or consumer economy. For example, if you live in an area with a booming housing market, then it makes sense to open a franchise that specializes in lending options.
How to Evaluate Your Investment
The other side of the equation has to do with your investment in the franchise. As a franchise owner, you’ll have to invest some money into your franchise before your doors open. This means that you’ll need to compare your earnings potential with your initial costs to determine your return on investment (ROI). Here are some specific items to consider:
Franchising Fees
Every franchise starts with a franchise fee. This is the fee you’ll pay to do business under the franchisor’s brand name and sell their products.
Fees can range considerably. The average fee will be between $25,000 and $50,000, though some larger corporations can charge in the six figures. Fortunately, this fee includes training, support, and guidance, which will usually last a lifetime.
Discounts
Check for discounts. Many companies offer discounts to certain types of business owners. For example, some companies extend a discount to military veterans, franchise owners looking to open multiple locations, or those opening a franchise in economically-depressed communities. These discounts may be small, but they can give you a leg up when getting started.
Ongoing Fees
In some cases, you’ll have to pay ongoing fees to the franchise in the form of royalty payments. These can be a flat fee, though they can also be a percentage of your profits. Some companies may charge an additional fee to cover marketing materials. All of these fees will eat into your profits, which impacts the available revenue you can use to draw a salary.
Other Overheads
Overheads can vary by industry. If you pursue a financial business, you can very often work out of a home office, which minimizes your overheads. This means that there’s a closer relationship between your gross earnings and net earnings, which translates into a higher annual salary.
Find a Successful Franchise
Ready to start looking for your next opportunity? Start by using the search tool on the Franchise Opportunities website. You can filter by location or even search by industry to find a business that matches your passions as well as your financial goals.