How Much Can I Earn Owning a Franchise?
Starting a small business can be very difficult. One of the main challenges an entrepreneur faces is communicating to potential customers what the business sells and why it is a good place to purchase products. To address this problem, many aspiring business owners will choose to, in lieu of starting a business from scratch, purchase the rights to sell a certain set of products under an established brand name. This is known as opening a franchise. According to Robert Bond, the publisher of World Franchising Network, the average franchisee makes approximately $60,000 per year.
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Franchises
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When a person agrees to open a franchise, he signs an agreement with the franchise company. In return for an initial investment and an agreement to abide by certain practices established by the parent company, the franchise holder receives products, marketing materials and other start-up supplies from the parent company, as well as advice on operating the business. As part of the agreement struck with the parent company, the franchisee must also turn over a portion of the income generated by the business.
Payment Structure
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In nearly all cases, the franchisee is expected to turn over a portion of his proceeds to the parent company. While a few parent companies may be willing to sell the rights to their brand outright to the franchise owner, most demand regular payments to retain the rights. According to the financial reference website Quint Careers, a person who holds a franchise will often pay the parent company between 3 percent and 5 percent of monthly gross revenues, although the compensation structure can vary greatly.
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Initial Investment
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In addition to paying royalties to the parent company, the franchise holder is also expected to make an initial investment in the business. This investment will cover many of the initial start-up costs such as rent and products, as well as a fee for the rights to use the name of the franchise. According to Quint Careers, the initial fee can range from $1,000 to $200,000, while the total average initial investment, not including costs due to the rent or purchase of real estate, is $250,000.
Profits
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The amount of money that a franchise owner can expect to make varies greatly, depending on a number of factors. In addition to the specific compensation structure of the business and the cost of the initial investment, the amount of money a franchise owner makes will depend on how well the business is run and how much demand there is for the franchise's products. A person could theoretically lose money on a franchise if he does not recoup his investment or make hundreds of thousands each year.
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