How Much Do Franchise Owners Make?
If you want to start a business but need a helping hand, buying a franchise may be a wise move. Under this agreement, you can open an established business and get the full support of the managing company. As a potential franchisee, you simply pay a few startup costs, and the franchiser will give you everything you need to open your business and begin making sales.
Franchise Business Review reports that the average franchise owner makes around $80,000 per year. However, this number is merely an average, with many people making below and above that figure.
Let’s see how much franchise owners make to see if running a franchise is a smart move.
Franchise owner salary: a mixed bag
In the survey mentioned above, 28,500 franchise owners reported their income and some other demographic data. After researchers combed through the findings, they found some outliers had skewed the data. For example, the top 7% of owners earned over $250,000 per year, pulling up the average number by quite a bit.
After adjusting the results for these outliers, the actual average income for franchise owners was less than $50,000 per year. This number is staggering, to say the least, but it doesn’t paint the full picture.
Following a franchise investment, owners typically build equity, meaning they have a growing ownership stake in a business. Since this equity can be sold for a very handsome return, the annual income does not always show the true profitability of the business.
For example, an owner might start a pizza restaurant and only earn $40,000 per year. However, the pizza restaurant and real estate (if owned) might eventually be valued at $2 million. The franchise owner can sell the business and land, earning a huge return on investment.
The average income of five famous franchises
The data above is helpful, but it isn’t the complete story. It includes all types of franchises, from everything from small coffee chains to multinational fast-food restaurants.
Many new franchise owners will invest in trusted brands. Using data from Franchise City, let’s look at how much these franchise owners earn from starting one of these famous franchises.
Chick-fil-A
These restaurants are huge hits no matter where they open, but that is all part of strict franchise approval standards. Chick-fil-A only opens between 80-100 restaurants per year.
The average location generates $4.16 million in revenue, with the owner earning around $200,000 annually.
McDonald's
Opening a McDonald’s location is not difficult when it comes to standards, but it is very challenging in terms of costs. Starting a single location will cost over a million dollars, and you will need to find and pay for the real estate yourself. However, McDonald’s franchises are a safe investment given the huge demand for this brand.
The average location generates around $2.8 million in revenue, with the owner earning around $150,000 per year income.
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Burger King
Where you find a McDonald’s, you often will find a Burger King. This franchise is a smart investment, but it will cost you between $2 million and $3 million to obtain a franchise. Luckily, most of these restaurants generate enough revenue to pay for this initial investment.
The average Burger King generates around $1.4 million in revenue, with franchise profit coming in around $85,000 per year.
Dunkin' Donuts
When you think of sweet treats and great drinks, does Dunkin Donuts come to mind? This brand offers a few franchise options, including buildings with drive-thrus, freestanding locations, and small shops in existing structures. Because of these options, a franchise can cost between $465,000 and $1.6 million.
The average Dunkin Donuts generates around $1 million in revenue, leading to a profit of $100,000.
Subway
With the sandwich brand struggling to stay competitive in recent years, starting a Subway franchise is a somewhat risky venture. The average location costs nearly $235,000 to start, but the expected revenue is much lower than most other franchises. Likewise, hundreds of locations have closed recently, showing demand may be falling.
The average Subway franchise generates around $400,000 in revenue, with profit averaging around $41,000 per year.
Item 19: a key factor to consider during research
When constructing your business model, and trying to factor in an owner's salary and expected financial performance, it’s likely you’ll look at the Franchise Disclosure Document (FDD)[1].
Companies with franchise agreements like to make their businesses look like good franchise opportunities, but have legal freedom to disclose varying amounts of information on franchise performance.
If a company has less transparency within the FDD, it’s worth asking why information has been withheld. The famous examples given above, for instance, have provided their profit and loss statements, in most cases this includes hundreds or even thousands of franchises. This demonstrates that they are good candidates for aspiring business owners.
Be patient and play the long game
Owning an outlet of a big-name business increases the likelihood of steady business. However, as with any business, starting out and establishing yourself takes time.
When you open a franchise, you have the big advantage of a pre-established reputation. This is calculated into a franchising fee which can be as much as 10% of the initial investment and a hefty slice of profits thereafter.
But once excitement builds about the new big name brand in town, and word really gets out, big-name profits can come with it, which can lead to some of the huge salaries mentioned above.
With 7% of franchise owners earning the big bucks of $250,000+ a year, and even an average salary of $50,000 with that 7% discounted, franchising can be a lucrative business to get into. So it’s worth considering if you’re looking for a low-budget business start which can bring with it a lot of experience, a steady income, and with a little luck, much more than that.
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