How Much Money Do Franchises Make?
Your first question as a franchisee is probably the most popular one: "How much will I make?" Franchisers usually won't or can't give numbers for earnings and for a good reason. It's virtually impossible to estimate what you'll make on a particular franchise. As with other heavily performance-based opportunities, how much you'll make depends on a lot of factors, including your actions as a franchisee. The franchiser simply doesn't want to risk a lawsuit or mislead potential franchisees by giving out inaccurate or unreliable earning figures.
Franchisers may give you historical earnings data, which is broken down into categories and represents actual sales or average earnings at different performance levels done by other franchise locations. The franchiser will note how the data is broken down and its sources on the documents you'll receive. Local laws may require the franchiser to identify the basis for the data and any supplied earnings projections. The data is for your research only and in no way guarantees you'll make the same amount. Typically, you'll find a disclaimer to this effect on the data report itself from the franchiser.
While historical data is still useful, the problem is that the historical figures are not limited by any geographic factors, market considerations or price changes. For example, if the franchise you're interested in relies heavily on a specific ingredient and that ingredient's price has skyrocketed in the last year, your expenses will be significantly higher than those shown for franchisees a year ago. If the community your location will be in is experiencing economic distress, you may not sell as much as a location in a more stable or affluent area. Other typical but unpredictable business risks, such as sudden changes in the market conditions, also will impact your earnings.
You might be allowed to ask other franchisees about sales figures and profit margins, depending on your franchiser's policies. Franchisers sometimes provide this opportunity after you pass the initial qualification rounds. However, franchisees may be reluctant to discuss sensitive earnings data, as the information is considered personal.
The franchiser may use profiling tools to gauge your performance as a franchisee. The tools will provide some indication about your expected level of success, but because it's impossible to account for all the changing circumstances, the tools do not guarantee results.
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