When it comes to finding the best franchise, you have done your homework and found an opportunity that fits your lifestyle and engages your interest. However, have you considered how you will actually make money and what happens to the money that you do make?
Put simply, to make money from a franchise, you will need to:
- Complete thorough research into current franchise opportunities.
- Be realistic when it comes to thinking about the profits you will make.
- Find out how much goes to the franchisor.
- Learn how much of your stock has to be purchased from the franchisor.
- Become a cautious spender to maximise potential returns.
Research Franchise Opportunities
In order to make money from a franchise, you will firstly need to complete thorough research into franchise opportunities. Not only will you need to look at projected earnings over the year, but you will also need to look into the expected outcomes of your future business.
Many franchisors are quick to explain the amount of money your business will produce but fail to give you full disclosure into how their costs and fees will reduce the profit you see at the end of the year. The best franchises that make money are ones with low overhead costs and high consumer input; businesses that require you do something to get paid will always produce good money-making franchises.
Be Realistic
Many new franchisees believe that they will make millions in their first year of trading, but this is just not true. In fact, the first few years of a business are often the hardest, with profits being the smallest figure on the account sheet. The reason for this is that there is a huge amount of setup costs involved with a new business, and you will need to pay lots of different people in order to get everything the way you need it.
When it comes to franchises, you are typically supported by the franchisor who will arrange everything for you to begin with, but you will still need to pay them for this, and it doesn’t come cheap, so you must be realistic at all times.
Spending Wisely
Every penny you spend on your business takes away valuable profit that you won’t get to enjoy, and whilst some business spending is essential, lots of it isn’t. It’s wide to learn what you have to pay for and what is optional, as well as looking for ways of cutting costs without diminishing your product value or your business efficiency.
Rather than jumping in to employ lots of staff, stop and consider how many you will really need in order to run your business. Remember to include yourself as a member of the team because you will need to put in lots of hours if you want to turn a profit.
It’s also worthwhile checking out what the franchisor insists you purchase compared to what they recommend, as these two lists often differ significantly. By reducing your outgoings, you are sure to maximise your earning potential.
Franchisee Profits
When we look at the profits, a franchisee can make the main revenue comes from sales that are made by consumers that know and trust the brand of the franchise. This makes up the majority of the earning potential a franchise has.
Franchises can also make money by selling their products to consumers who may not have heard of the brand and be trying it for the first time. This type of profit is far less than from repeat and loyal customers but still offers a decent revenue stream.
In a bid to maximise outcomes, franchisees can also apply for business grants to help with set up costs, taking the financial burden away from profits and allowing a franchise to grow its client base with support.
Franchisor Profits
The majority of franchise profits go to franchisors, and they benefit the most from any new franchises being open. A franchisor is responsible for maintaining the company brand and ethos as well as training new franchisees and offering support to all its franchise owners.
However, franchisors have multiple revenue streams that bring in profits each year. Firstly they receive a huge income from new franchise investments. This is the money people pay to open a new franchise using their brand.
Once a franchise is up and running, a franchisor can expect to turn a profit each month by taking a royalty fee or a share of each sale made. This is where a franchisor makes the most money, and by supporting a franchise to improve their performance, a franchisor is also increasing their income.
Franchisors also make a profit from selling their goods to franchisees to sell. This can range from food production to marketing and apparel as well as items to sell in the franchise. Franchisors will sell this ‘at cost’ to their franchisees to allow them to make a profit, but they will ensure that there is a healthy profit margin included in the price so that they make money from this too.
Summary
It’s clear to see that there is money to be made from franchising, but many people fall into the trap of believing they will make tons of money in their first few months of trading. The reality of this is that if you find a franchise that makes these promises, then they are more than likely a fad that should be avoided. In reality, you will need to be savvy with what you spend to ensure your profits match your expectations.
There is a real market for franchises, but you need to be realistic about the money you can expect to make, especially at the start. By keeping a level head, you are far more likely to achieve success in the long run and can look forward to enjoying the profits that come along with that success.
