{"id":10392,"date":"2016-08-10T11:24:40","date_gmt":"2016-08-10T15:24:40","guid":{"rendered":"https:\/\/www2.franchisegator.com\/articles\/?p=10392"},"modified":"2022-08-23T03:21:24","modified_gmt":"2022-08-23T07:21:24","slug":"figuring-your-franchise-income-10958","status":"publish","type":"post","link":"https:\/\/www.franchisegator.com\/articles\/figuring-your-franchise-income-10958\/","title":{"rendered":"How to Figure Your Franchise Income"},"content":{"rendered":"

When looking to buy a franchise, one of your biggest
\nquestions will likely be \u201cHow much money can I make?<\/strong>\u201d Although it\u2019s probably
\nthe main concern for prospective franchisees, it\u2019s also the most difficult to
\ndetermine<\/em> because there are so many variables involved. Franchisors can readily
\npoint out what it will cost to get your business going, but none \u2013 no matter
\nhow good their track record is \u2013 can guarantee your success.<\/p>\n

A franchisor may direct you to their Franchise Disclosure
\nDocument<\/a> (FDD), which outlines what they are required to disclose to
\nprospective buyers from start-up costs to training to litigation, as well as
\nthe financial performance of current franchise units \u2013 if it is made available.
\nThis portion of the FDD, contained in Item 19, is optional for franchisors to report
\nand how much information they give is left to their discretion. Some choose to supply
\na full profit and loss statement while others report averages and some only
\nshare details around their top performing units. It\u2019s important for candidates
\nto keep this in mind when reviewing franchisee earnings because the information
\nis not divulged equally.<\/p>\n

One of your biggest
\nquestions will likely be ‘How much money can I make?’…<\/p><\/blockquote>\n

Regardless of whether a franchisor includes details
\naround unit earnings or not, you can estimate earning potential on your own, or
\nwith the assistance of a financial professional, by examining the royalty
\npayment information which all franchisors are required to disclose.<\/p>\n

The Steps<\/h2>\n
    \n
  1. Find the total royalty payments jointly paid to
    \nthe franchisor by existing franchisees during the previous year.\n<\/li>\n
  2. Make note of the royalty rate, which is the percentage
    \nof gross sales franchisees are required to pay.\n<\/li>\n
  3. Locate the total number of franchises operating
    \nfull time and divide that by the royalty payment total to get the average
    \nroyalty payment.\n<\/li>\n
  4. Lastly, divide the average payment by the royalty rate to
    \ncalculate average gross sales<\/strong>.\n<\/li>\n<\/ol>\n\n\n\n\n\n\n\n\n
    EXAMPLE<\/th>\n<\/tr>\n
    Total Royalty Payments:<\/td>\n$2,075,000<\/td>\n<\/tr>\n
    Royalty Rate:<\/td>\n6%<\/td>\n<\/tr>\n
    Number of Units:<\/td>\n118<\/td>\n<\/tr>\n
    Average Royalty Payment:<\/strong><\/td>\n$17,585<\/strong> ($2,075,000 \/ 118)<\/em><\/td>\n<\/tr>\n
    Average Gross Sales:<\/strong><\/td>\n$293,083<\/strong> ($17,585 \/ .06)<\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    More to Consider<\/h2>\n

    Remember that gross sales<\/em>
    \ndo not equal profit<\/em>. Estimate your
    \nmonthly expenses by researching the FDD and deduct costs for things like
    \nequipment, real estate, marketing, employees and yes, royalty fees, to get an
    \nidea of what your earnings may be.<\/p>\n

    Candidates need to take into account that there are several
    \nfactors which can affect the success of a franchise because of the many variations
    \nacross individual units. Costs such as real estate and taxes differ depending
    \non where the business is located, not to mention how well the brand is
    \nestablished in a particular region of the country, or how well a franchisee\u2019s
    \nskills are suited to running the business.<\/p>\n

    Performing due diligence is essential when considering
    \nthe purchase of a franchise, and evaluating your earnings potential is just one
    \narea to investigate. Enlisting professional help from a franchise
    \nconsultant<\/a>, attorney or accountant can help you determine the right
    \nfranchise and ensure you are making a sound decision.<\/p>\n","protected":false},"excerpt":{"rendered":"

    When looking to buy a franchise, one of your biggest questions will likely be \u201cHow much money can I make?\u201d Although it\u2019s probably the main concern for prospective franchisees, it\u2019s also the most difficult to determine because there are so many variables involved. Franchisors can readily point out what it will cost to get your … How to Figure Your Franchise Income<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":10393,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,29],"tags":[],"class_list":["post-10392","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-franchise-experts","category-how-do-i"],"yoast_head":"\nHow to Figure Your Franchise Income - Franchising Blog<\/title>\n<meta name=\"description\" content=\"When looking to buy a franchise, one of your biggest questions will likely be \u201cHow much money can I make?\u201d Although it\u2019s probably the main concern for\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.franchisegator.com\/articles\/figuring-your-franchise-income-10958\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to Figure Your Franchise Income - 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