In my last post, I wrote about how hard it can be to get information on how much money you can potentially make as a franchise owner. Some franchisors publish this information in their Franchise Disclosure Document (FDD), but some do not. If they don’t make this information available to you, how do you find it?
If a franchise does not provide an earnings claim in their FDD, the best source of information to find out how much money you can make is the existing franchisees of the system. Call them and ask. The FDD will provide a list of current and former franchisees along with their contact information. Make sure that you select enough franchisees at random to get a clear idea of the averages and ranges for earnings in the system.
Once you have an idea of the ranges of earnings for a franchise, your next question will be: What is a reasonable level of earnings for a franchise business?
Remember that when you invest in a franchise, you are investing both your time/talent and your money. Therefore, you should reasonably expect a greater return than you would for a passive investment of money only.
If a good return for a passive investment is 10 to 15 percent per year, you will want to see a greater return in a franchise opportunity. After all, the time you put into your new business should yield you a return at least equal to the return on the money you invest, maybe not the first year but certainly down the road.
A second important point to consider is that a higher franchise investment does not necessarily mean a higher rate of return. While this seems contrary to common knowledge, there are plenty of low to mid-range investment franchises that provide great return on investments. Don’t limit yourself only to high-investment franchises when seeking that business with a high ROI.
How much money you will make as a franchisee depends on many factors ? from the structure of the franchise (e.g. retail versus service), to how long your franchise has been operational, to how well you understand and embrace the system, to your enthusiasm for the business and how it will help you realize your dream. But, with a little research, you can get enough information to decide if an opportunity makes financial sense for you.
Linda Bremer Menter is the Vice President of Consultant Development for FranChoice Inc., a national network of franchise consultants that provide free guidance and advice to qualified individuals in the United States searching for franchise opportunities that match their personal interests and financial qualifications.