How Much Can You Make in Franchising?

Franchisors often don’t give straight answers to franchisees asking the question “How Much Can You Make in Franchising?” due to the numerous legalities involved. To go into detail: the Federal Trade Commission (FTC) has strict requirements regarding earnings claims statements for franchisees. In a franchisor’s Uniform Franchise Offering Circular/FDD, earnings claims statements must be accurate and substantiated in written form. Franchisors can get into a lot of legal trouble if they misrepresent themselves in their UFOCs/FDDs.

The legal issue is compounded by the fact that franchisors are always trying to woo potential franchisees. Producing earnings projections and statements takes effort, time and money away from sales efforts. If accurate earnings results effectively turn franchisees away from a concept rather than woo them forth, this lack of sales funding hardly seems like a good move. If you want a straight answer about earnings, you should ask a franchisee — they’re more likely to be unbiased in this regard.

In a passive investment situation, you should be able to earn 10 to 15 percent ROI over time; however, most franchisees are not passive participants, which means that the opportunity to make more money could be substantial. Remember, there is no locked-in earnings guarantee. Generally, franchises yield earnings of at least 30 percent of their total investment annually, a record that you could easily expect to reach by your third year as a franchisee. Clearing a six-figure income, however, might take a few years, so you should be prepared to be patient.

Some industries, such as hotels, typically offer higher returns. A good rule of thumb is that the higher the investment the higher the ROI, though this is not always the case and you must always, always do your due diligence before making any weighty investment. For instance, if a franchisor requires a high initial investment but several current franchisees inform you that the earning potential is about the same as a competing franchise, you should probably go with the competing franchisee.

Some home-based business franchises require very little upfront cash but show promising earning potential. These franchises include IT, computer support and tutoring/education franchises . . . keep these industries in mind!