For aspiring entrepreneurs, one of the biggest questions is “How much do franchise owners make?” It’s a reasonable and vital question to ask, considering the investment involved. If you’re going to buy a franchise, you want to make sure you’ll have good ROI before you sign on the dotted line.
Ideally, any given franchisor would offer prospective franchisees an exact dollar amount projection for how much they will make if they buy into the franchise.
However, franchisors wisely refrain from furnishing such figures or making any guarantees to potential franchisees. While they may provide general figures showing profits from their current franchisees, you will not be told, “If you buy into our franchise, you can expect to make X amount of dollars.” Why not?
For one, franchisors do not want to be legally liable for the failure of a franchisee to generate X amount of income. Plus, there are so many variables at stake that it’s virtually impossible to predict how much a franchise owner can make.
True, you can easily punch “franchise owner salary” into your search engine and get some average figures. On the one hand, these numbers are helpful and can give you a ballpark answer to the question of “How much do franchise owners make a year?”
For example, “The national average salary for a Franchise Owner is $72,648,” according to Glassdoor, an online platform that allows users to submit their salaries anonymously. The low end of the salary spectrum hovers around $32K per year, while the high is $164K per year.
That being said, this average figure represents all industries, company sizes, and years of experience. Actual take-home franchise owner salary varies case by case.
If you’re interested in buying a franchise, let’s help you find answers to essential questions regarding your potential bottom line, including:
- How can you tell if buying a franchise is a profitable investment?
- How do franchisors make their money?
- What should you know about franchisee income?
- How much do franchises make in different industries?
Is Owning a Franchise Profitable?
Potentially, owning a franchise can be a lucrative business. Franchising is a popular business model in the US, and many entrepreneurs are drawn to the idea, especially after learning that some franchise owners earn six-figure incomes every year.
However, the profitability of a franchise hinges on several key factors.
Factors Affecting Franchisee Income
- Territory – Typically, franchisees obtain the right to open and operate in a specific area or territory. Your income may be affected by the number of competitors in your area. If you’re the first unit of a particular franchise to open in a new territory, it may take a while to build up a regular client base. Still, in the long run, you’ll be filling a need in the area with fewer competitors and can gain traction over time.
- Number of units – Most franchisees start by owning one unit, but some choose to expand or even have a contract with the franchisor to open X amount of units over a specific time frame. If, down the road, you’re operating several successful units, your income potential will likely increase.
- Overhead – Like any business, owning a franchise comes with hefty overhead. The cost of running a franchise includes buying a stock of products, financing payroll, taxes, loan payments, etc. In many cases, franchisors also require franchisees to find their own real estate, which is a separate and significant cost.
- Business sense – The success of a franchise depends mainly on the franchisee. A franchise owner with solid business skills and experience running a company is more likely to turn a profit than someone lacking those qualities. Owning a profitable franchise also depends in part on building, maintaining, and managing a solid workforce.
- Years in operation – Typically, the franchise owners with the highest income have been well established in their respective territory for years and may own several units. Even so, consumer habits have changed drastically in recent years, and new demands are cropping up everywhere, so opening a franchise to fill a developing need in your area may meet success from the start.
How Do Franchisors Make Money?
Of course, along with the above factors, franchisees must anticipate and budget for the fees they will owe to the franchisor. What type of fees do franchisees typically pay to franchisors?
Franchisors make money in three main ways:
- Franchise fees – Entrepreneurs should expect to shell out at least $20,000 as part of the initial franchise or licensing fee.
- Royalty fees – Franchisees typically pay between 4 and 12% of their total monthly revenue to the franchisor as a royalty.
- Marketing fees – Usually less than royalty fees, a percentage of a franchisee’s total monthly revenue is owed to the franchisor to fund the advertising done on behalf of the brand as a whole.
What else should you know about franchisee salary before you invest?
3 Facts About Franchisee Income
When you’re thinking of investing in a franchise, it’s exciting and prudent to gather all the relevant information and facts you can.
Here are three interesting facts about franchisee income:
- Financial performance data is not required. – Franchisors are required to supply a Franchise Disclosure Document (FDD) to potential franchisees to help them understand the particulars of the agreement before committing. The FDD is organized into 23 specific sections called ‘Items.’ In the franchise agreement section termed Item 19, franchisors may choose to furnish data on the financial performance of their units. However, this is not a requirement.
- A big name doesn’t always mean more profit. – Some entrepreneurs may assume that the best way to ensure success as a franchisee is to buy a franchise from a big-name company, like McDonald’s, Subway Burger King, or Dunkin’ Donuts. It’s true, the Mcdonald’s franchise is one of the largest in the world, and you can’t argue its popularity as reflected in sales. However, business owners who choose to buy a lesser-known franchise may well meet with just as much success or more, especially when considering the much lower startup cost.
- Franchise stats merit entrepreneurs’ attention. – Anyone looking to launch a startup should note that according to Statista, a platform providing market and consumer data, there are over 773,600 franchise establishments in the United States, employing over 8.3 million people and generating a total economic output of $787.5 billion.
Is Buying a Franchise Risky?
Like any investment, buying a franchise is a risk. Considering the factors we mentioned above, many things can affect how much franchise salary you can expect to generate from your endeavor.
While it’s true that many franchisees have failed to gain a positive ROI, several things make buying a franchise less risky than other investments. When it comes to startups, purchasing a franchise is often safer since it usually requires less startup cost than opening a new business from scratch.
Additionally, it’s typically easier to get a business loan to buy a franchise than to open a brand new company. Plus, franchisees enjoy the benefits of bearing the name of a well-established business name with a strong brand identity, pre-existing customer base, and other possible perks like bulk discounts, training, and guidance from the franchisor.
Heading: How Much Do Franchise Owners Make In Different Industries?
Now that we’ve looked at some stats showing the overall affluency of the franchising market, let’s zoom in on specific industries using the franchise business model.
According to Glassdoor, here are average franchise owner salaries for the following industries:
|Industry||Average Base Pay Per Year||Range of Salary Per Year|
|Beauty & Fitness||$80K||$35K – $180K|
|Construction||$104K||$60K – $178K|
|Education & Schools||$58K||$21K – $162K|
|Health Care||$84K||$48K – $146K|
|Manufacturing||$56K||$26K – $121K|
|Recruiting & Staffing||$137K||$66K – $285K|
|Restaurants & Bars||$76K||$33K – $177K|
|Retail||$56K||$24K – $133K|
Note: The data above reflects income for franchise owners of all company sizes and all experience levels. It is based on 114 salaries submitted by anonymous contributors. While this data can provide an exciting overview, it is limited in scope, and actual earnings will vary for each franchise owner.
How to Decide Which Franchise to Buy
It can be tricky and even nerve-wracking to decide on which franchise to buy. However, with some forethought and careful planning, it will be easier to decide with confidence.
When deciding which franchise to buy, consider these factors:
- Your interests – To obtain a franchise, the initial investment will require considerable funds, efforts, and time. Due to the cost involved, make sure you invest in something that will hold your interest and a brand that you feel good about backing.
- Your budget – You may consider working with a financial advisor or using other entrepreneur resources to help you map out a feasible and financially responsible business plan. Set a reasonable budget for how much you can invest in a franchise and consider only franchises within your budget. Remember, it may be several years before you have any take-home money from your endeavor, so planning is critical.
- Your area – When considering a specific industry or franchise opportunity, take a good look at your potential franchise location and ensure you have a viable target market.
Hopeful franchisees should put in the time to thoroughly research all aspects of franchising and even ask for advice from ones who have experience in the business.
Get Help Starting a Franchise
Starting a business, especially one as involved as a franchise, can be complicated. As you embark on the franchise journey, you might find it helpful to have some help in your corner.
Here at Why Franchise, we provide helpful resources to guide you throughout the process of starting a profitable franchise. We offer the information entrepreneurs need to understand the potential risks and rewards of franchising and help them learn how to set themselves up for success as a franchisee.