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ROI in Franchising: Determine the Rate of Returns on your Franchise

How much money I will make”, the very first question asked by the franchisor. A wise investor always considers the return on his investment before putting his money in any business. While taking franchise venture, a franchisee considers the investment and the time spent in business as well. Hence return on invested capital should be higher than the returns on any passive investment (investing your money but not any significant amount of time).

The money a franchisee can make depends on various factors: the structure of franchise, the time-period of franchise, the working method of franchisee, their contribution in franchisor’s success.


Calculate Returns on Investment in Franchise

Returns of 10-15 percent are usually considered good returns on franchising. Since it takes a great deal of time in setting franchise in addition to the money investment.
Franchisees can start determining their expected ROI by calculating the monetary return first. Initially businesses generally experience a loss of revenue. With the passage of time, the business will break even and start generating rapid profits after two to three years.

In order to find the type of return to expect from franchisor, a preliminary investigation should be done on the franchise. Find out the average income of a typical unit in the starting phase of operation.

You can gather the information from Franchise Disclosure Statement. Check out the initial investment of purchasing a unit. If disclosed, you can check the earnings by the different franchisees from the various locations. This data, if available will help you in projecting a 3-5 years ROI estimate.

You can review their prior and current franchisees. Contact these franchise owners, they can provide you with valuable information.

How to Increase your Potential Return?

To increase your return on investment, find a franchise in which you can use the best of your skills as leverage. The franchisor’s business model and your investment of talent, time and money would be a good forecaster of success.

Take a look on the Flourishing Franchisee Sectors:

  • Health & Beauty
  • Apparel & Fashion
  • Food & Beverages
  • Fitness Centers
  • Business Services
  • Construction & Real Estate

If you want to become a franchisee, select a franchise business opportunity that matches well with your experience to get good rate of returns on the invested capital. Get detailed knowledge of questions you should ask from the franchisor and be the boss.

Posted in: Franchise

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