How Much Does a Franchise Earn on Average?

Posted by: Nick Leiber on September 11, 2009

This is a post by guest blogger Don Sniegowski.

donsniegowski.jpgAlthough experts say that it is critical for franchise investors to understand average earnings for any outlet in a franchise system, would-be franchise buyers find it is often extremely difficult. That’s because the industry as a whole doesn’t normally tell the buyer what their franchises make on average. And even when earnings are provided, they are presented in various forms. That makes it nearly impossible to compare one franchise brand’s earnings potential to another.

In a recent interview, I discussed this problem with Robert Bond, who has some two decades of experience researching earnings claims and is the publisher of World Franchising Network and the author of the book, How Much Can I Make? Highlights of our conversation follow. You can also read my in-depth article about earnings claims and listen to the audio interview.

“Just about every franchisor knows what its franchisees are making and they can make that information available. For one reason or another, very few decide to make that information available. Certainly the most important bit of information that a franchisee can get before he or she makes a $200,000 or $500,000 investment is to have a sense of what he or she can make. My sense is that very few [franchise buyers] have a clue on what they can make. The prospective franchisee thinks they are probably going to make $150,000 so why should a franchisor deflect their expectations? In today’s world a franchisee that was making $100,000 last year would be making $40,000 today. Nobody [most franchisors] would knowingly impart that information.”

However, that reluctance by franchisors to disclose a franchise’s average earnings before income tax or even how much they sell may be changing. Says Bond: “The trend is in the right direction. More franchisors are doing it. And the information is more meaningful than it was 10 years ago.”

So how much does a typical franchise owner make?

Bond says that it ranges greatly, depending on whether a multimillion dollar hotel franchise is bought or a low cost home office franchise. Giving his best guess, and probably gearing that guess to a medium sized franchise of the past few years, he elaborates: “My view is that an average franchisee will probably make, say $60,000 a year by working probably 60, 70, or 80 hours a week at the outset. And that may or may not include a decent return on their investment.” He clarifies what he means by a franchisee’s earnings: “That’s their net income as a salary.”

Those numbers help explain why many franchise owners look to multiple-unit ownership for enough earnings to sustain their lifestyle. That, and trying to figure out how to make do with less rest and be in multiple places at the same time.

Don Sniegowski is the founder and editor of Blue MauMau, a daily business news site for franchise buyers and owner-operators. Previously, he led global field operations and franchise development for a quick-print franchising firm. Sniegowski also helped lead global publishing efforts for trade publisher Global Sources Media and led Asia-Pacific retail and operations for Franklin Covey.

Reader Comments

Carol Cross

September 11, 2009 12:02 PM

It is interesting that Mr. Bond even agreed to do an interview with the Blue Mau Mau Editor, who does expose some of the darker side of franchising and its ugly secrets on his website!

It is revealing that after many years in the industry, Mr. Bond can only give a "best guess" as to what franchises make! His gloomy "best guess" is ugly reality that is obscured from the view of start-up franchisees under cover of federal regulatory policy designed to subsidize franchiSORS and the other special interests who benefit from franchising.

Obviously, franchisors benefit from not making earnings claims and from the fact that franchisors think they can withhold MATERIAL RISK FACTORS from new buyers of their franchises with impunity under the law because of the Federal Trade Commission Rule.

Don Sniegowski points out in his last paragraph that at least the Multiple Unit Franchisees do spread their risk in hope of rewards -- but even some of them are now biting the dust!

I would like to read the entire interview with Mr. Bond but unfortunately my computer seems to be blocked from the Blue Mau Mau site and I have no access.

Richard A Solomon

September 12, 2009 05:00 AM

In today's small business investment environment, knowing average earnings and sales of an investment target is only one part of many due diligence projects. I agree that reliable financial modeling would open windows, but franchsors won't do that and franchisee associations haven't graduated to that level of business performance yet. Is that coming soon? Yes, but not this or next year. It is just beginning to gestate as the next big diagnostic tool.The large successful franchisors already do it in house but don't need to publish it in order to sell franchises. Its critical need is in the second tier investment proposals.

Carol Cross

September 13, 2009 12:33 PM

Yes! Perhaps, in the future, franchisee associations will routinely share their unit performance statistics through Internet Websites and there will be more transparency in the future for new buyers and investors -- unless, of course, the franchisors themselves are forced by these new pressures into disclosing unit performance statistics in order to sell their franchises.

Obviously, the Internet and the Franchise Websites like Blue Mau Mau, Franchise Pick, and Franchise Fool have brought change to the industry.

Richard A. Solomon, Author, Franchise Expert, and Attorney, indicates that NOW the big franchisors don't have to publish system UNIT performance statistics in order to sell franchises, but change is coming. Maybe "reliable financial modeling will open windows" amd franchisors will volountarily disclose material risk factors in their possession to the new buyers of franchises.

Javier Guandalini

April 27, 2010 03:28 PM

Good post.! I like to reflect net profit always. Average franchise, you pocket 15% of your investment (yes ugly number!).
Javier Guandalini is Operations Analyst of IBO. (Web based company specialized in Business Operations Management).
http://www.FixMyBusinessProcess.com

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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