Figuring Your Franchise Income
Sometimes entrepreneurs decide to open a franchise for love of the brand " the familiar taste of those delicious burgers or a consistently warm welcome at a favorite hotel chain. These business owners are dedicated to replicating or improving a specific conceptual model, and know exactly which franchise they want to open.
Others franchise a business for big bucks with security, hoping to capitalize on an established trademark with proven profitability. They're in it to win it, and objectively choose to open the franchise which is likely to earn the highest revenue.
Whatever the reason behind your decision to franchise your business, one thing is certain " you want to make money! If you've tried searching online for the average income of a franchise, you probably didn't have any luck. Companies don't like to freely give this information away, preferring to have their franchisees calculate their potential earnings themselves.
In order to evaluate your franchise's money making potential, you must have a grasp of certain accounting principles and figures. If you're uncomfortable figuring such important numbers without assistance, contact esteemed franchise consultants Upside Group for guidance to optimize your potential for success! Or, if you're confident in your mathematic ability, grab your franchise disclosure documents and a calculator and get ready to crunch some numbers.
First, search the FDD for the total royal payments to see how much money current franchisees collectively pay the franchiser.
Next, record the royalty rate (percentage of sales franchisees pay as royalties).
Third, find the total full time operating franchises recorded in the system.
Divide the total royalty payments by the total number of franchises. This will determine the average royalty payment each franchisee paid.
Finally, divide the average royalty payment per franchisee by the royalty rate.
Following these steps, you'll calculate individual franchisees' average gross sales.
This is a critically important factor in determining whether you should open a franchise you're considering, and how to prioritize your financial objectives moving forward.
This article was written by Upside Group Franchise Consulting. Upside Group Franchise Consulting provides traditional marketing experience from multiple disciplines, as well as franchise marketing expertise in advertising, sales, public relations, franchise manuals and documentation, training, and business development.
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