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Although 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. But here is a best guess by one of the industry's top experts and researchers on such matters.
The industry as a whole doesn’t normally tell the buyer what their franchises make on average. Even when earnings are provided, they are presented in various forms. That makes it nearly impossible to compare one franchise brand’s average earnings 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 Source Book Publications 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 figuring out how be in multiple places at the same time and to do more with less rest.
This article is cross-posted from Don Sniegowski’s BusinessWeek blog that provides coverage of the franchise industry.