How much money do you make owning a franchise? It’s a query that our prospective partners naturally want answering before they dive into a bid.
To shed some light on the issue, we’ve put together a helpful guide for anyone with eyes on their earning potential. And it’s more than you may think… Read on to discover what brands like Rainbow can offer.
What might your income be as a franchise owner?
You will need to put some capital upfront before the deal can be signed on a new or resale franchise territory. Plus, bear in mind that for new territories in particular, it will take time to build a profitable business model; you’ll need to be certain that you can stay afloat until those earnings kick in.
In terms of what you can earn, there is no clear answer – it depends on the sector you’re in, the location, and how many hours you pour into the business’ success.
BizFluent, states that the average income for a franchise owner in the US is $128,000 (or around £90,000).
The McDonald’s franchise brought owners a mean figure of £172,000 in 2015. In the same year, a collaborative survey from NatWest/The British Franchise Association stated that 97% of UK franchisors were making a profit.
Whilst it’s hard to pin a definite number on what you’ll earn, franchisors can make upwards of £90,000 per annum when they hit their groove. As a rule, we’d say that the gross, pre-tax turnover should be no less than 30% of your initial franchise investment.
The highest income franchises
We’ve already said that it’s nearly impossible to give a clean, cookie-cutter idea of average franchise profits across the whole franchise industry. Yet that doesn’t mean every sector performs equally well. Some are in greater demand than others. By targeting them, you are raising the odds of making a small fortune.
Among the top-earning franchise sectors are:
KFC and Subway are two of the highest profit franchises. Diane Wehr, a former Subway owner, claims that her fellow owners were taking a 7.5% share of the annual profits (Diane estimates these to be at $400,000, translating to roughly £21,000).
It’s an ongoing trend, and shows no sign of exhaustion in the market. Brands such as Fit Body Boot Camp – have an extremely robust business model. Testimonies reveal one partner earning more than £14,000 a month in take-home pay.
Specialist cleaning and restoration
PointFranchise have detailed their top five cleaning franchise brands in the UK. Some are domestic, and therefore on a smaller scale, but others are of the specialist variety (those that deal with fire damage, flooding and industrial hygiene).
In fact, Rainbow International are on that very list; it mentions specialist cleaning’s £24bn contribution to the British economy, and that (as of late 2017) we boasted over 700,000 employees nationwide.
How do franchise owners get paid?
You know what a franchisee can make, as a ballpark sum, and where the biggest takings might lie. Now let’s move to the structure of your personal wages – what shape it can take, who decides that, and the differing requests from brand to brand.
There’s absolutely no doubt about one thing: the franchisor will be taking a cut from the profits. Think of it like a membership fee. You’re paying them the privilege of using the business name, training and trading licence.
The Balance reports that franchise deals usually ask for a 5-9% contribution from any sales. That’s the baseline for a reputable agreement. A further 1-4% may go towards regional marketing costs for your branch.
Subsequently, the rest is yours to distribute as you wish. You are your own boss. As long as rents, utilities, supplies and the staff are paid, the franchisee gets to keep whatever they make.
You can pay yourself solely through a salary or, if you register as a limited company, withdraw some of your profits as dividends. The latter is a viable way to keep tax to a minimum, but it does come with more administration.
It’s your choice as to whether you remain a sole trader or become the director of a limited company. Ultimately, franchises aren’t a legal structure; they are just a replicable model. So, this decision is in your hands.
Is franchising a profitable business model?
Many people cast their lot in with a franchise deal because they assume, mistakenly, that it is going to provide a lavish lifestyle overnight.
There is a belief that 90% of franchises survive their first five years, whilst 15% of new, independent ventures fail in the same period.
To be blunt, that’s not right. The evidence is unsubstantiated. There is no major difference in business survival rates between franchise leaders and their independent peers.
However, there are numerous benefits for franchises if we’re talking about profitability:
97% of franchise outlets declared a profit in 2015. Once you get past the hurdles of becoming a franchise leader (which largely boil down to earning back the cost of your start-up investment), you’ll swiftly find room to grow and boost your salary.
Gain a head start
For those who’ve never run an entire local operation before, independence is a daunting factor. Franchising helps some entrepreneurs ease into their goals without pushing them out of them door into a strange, competitive world they don’t know too well.
You get training. You get the in-built exposure of the brand. Proven strategies are handed down to you.
Flexibility when it comes to clients
There’s definitely an argument for choosing B2B (business-to-business) franchises over those appealing to consumers. Robert Edwards, from Franchise City, does a thorough job of explaining the financial benefits of selling to corporate clients.
They are usually on a larger scale and better connected than typical domestic jobs. Of course, a mix doesn’t hurt; Rainbow are an example of hitting both markets.
The most profitable franchise revenue models
Let’s examine a few of the most common revenue models for franchises in the UK. They are influenced by the product or service you’re selling, as well as the brand’s tactic for delivering on a promise.
Whereby you sell something to a customer and they use it, paying again for the same thing. It’s what we do when we buy eggs at the supermarket, making a single non-recurring purchase then and there. Restaurants are a major player in this franchise arena.
People will pay you per month, bi-annually, over a full year, etc. to gain the value of what you’re offering. The revenue structure is extremely diverse, encompassing everything from residential property franchises to (you guessed it!) specialist cleaning.
Kumon, the Japanese tutelage company, is probably the largest example of a contracted business franchise – it boasted 25,386 international franchisees in 2016.
Source: Franchise Direct
This model is almost the same as ‘contracted business’, except it starts again when the payment period expires unless the customer stops it. A fee is sometimes charged for premature cancellation.
Numerous articles and think pieces have stressed that the subscription economy is not only getting more prevalent, but may take up the bulk of how services are maintained for years to come.
Potential value offers
This is where the company provides the means to achieve a result but leaves the final decision in the hands of the consumer.
Consider, for example, a non-franchise brand like Adobe Photoshop, which doesn’t actually create digital imagery itself. Instead, the person buying it chooses when and how that result is made. The value is ongoing and potentially infinite.
What’s the equivalent in the franchise sector? Well, we can look to H&R Block, a provider of intelligent tax software and office support.
A summary and the way forward…
So “how much money do you make owning a franchise?”. Well, what do you really want to gain from franchising?
We have outlined some facts and trends to lay the base for further investigation. Beyond them, talent and determination alone can turn you from competent to a trailblazing success.
What can Rainbow International offer franchisees?
Rainbow International have built an excellent template for how specialist cleaning and restoration should be done. Our customers love us. Our finances are strong.
In terms of your expected income when working with us, it’s not uncommon for the fruits of our franchise owners’ labour to translate into six-figure sums for those who do well.
We ask for a £55,000 startup fee plus working capital. Let’s imagine, then, that the total commitment is £80,000. That would point to a £24,000 turnover, at the very least, before you earn enough to make a return.
This is an extremely modest sum; the real takings are likely to be much more appealing, because you’re in a high-demand sector with great adaptability on your side.
Join our Next Steps programme to book a call with a Rainbow representative. The specialist cleaning and restoration business has some of the most enticing prospects in the entire franchise sector.