Franchising Profits

The following is an example of the potential income to you the Franchisor from the sale of 10 Franchises


We recommend that you the Franchisor charge an initial Franchise Fee of $15,000 to $25,000 for each new Franchise Sold and a 6% Royalty Fee


Ten Franchise (10) units sold at $25,000 = $250,000 paid to you the Franchisor


The success of a Franchise Company is based on its' recurring fees (royalties) that are normally received weekly or monthly from the Franchisees. The initial Franchise Fee does help a company grow and produces some cash flow to sustain that growth, but the royalty income and the income from the sale of proprietary products to the Franchisee is the main source of growth and profitability.


Royalty Income should be 5% - 10% of Gross Revenues from each Franchisee paid to you the Franchisor weekly. This amount varies in each industry. The Fast Food industry usually charges between 5% and 7% of the Franchisee's gross volume while a pure service industry might charge as much as 10% or more, of the Franchisee's gross volume.


Ten Franchise (10) units established, each grossing $500,000 per year gross income and paying @ 6% Royalty = $300,000 yearly Franchise Royalty Income to you the Franchisor


The initial Franchise fee is needed to cover the costs of:


1. Advertising the Franchise for sale


2. Paying any Brokers or Franchise Sales persons


3. Expenses of Training the new Franchisee


4. General Corporate Expenses


The expenses related to The Royalty Fee income from the Franchisee are related to:


1. Supervisory Costs


2. New Product Development Costs


3. General Corporate Expenses


These costs are usually diluted to a small percentage of income as the number or Franchise units increases. To illustrate this point: A supervisor can usually cover ten to fifty units in an area, depending on the type of business and the spread of the units. The costs related to the supervisor therefore can easily be divided by the income from more units and reduce the cost of supervision dramatically.


It is therefore wise in designing the Franchise program to plan for:


A. Unit concentration


B. Sufficient Initial Franchise Fees to cover costs


C. Adequate Supervision of Franchisees to perpetuate the Royalty Income