Do Franchise Owners Make Money? Yes! Here's What to Expect
Thinking about starting a franchise? One of the many things you’re likely to consider is your earning potential. Because of the support and resources franchise owners receive, as well as the brand loyalty they benefit from, franchising can be a lucrative opportunity. Choosing an opportunity in the home services industry, which provides services that people need regardless of how the economy is faring, may put you at even more of an advantage.
Learn more about making money as a franchise owner.
How Do Franchise Owners Make Money?
Like other business owners, franchise owners make money by selling their products and services. Of course, sales are only part of it; in order to maximize your profits, you’ll need low operating costs, strong buying power, and a marketing plan that’s tailored to the community you serve. Not only are most franchises better equipped to achieve this than an independent business, but they’re often built into the franchise business model.
It’s important to note that franchise owners don’t get to keep 100% of their profits. Throughout the life of your franchise, you’ll be responsible for royalty fees that are paid to the franchisor, usually based on gross monthly revenues. In return, the franchisor provides continued support through marketing programs, technology updates, research on new revenue streams, keeping an eye on the competition, and a lot more.
Common Questions About Franchise Profits
What will impact my take-home pay?
Aside from the fees you are responsible for, the factors that go into determining your take home pay are generally no different than they are for other business owners. Your net pay is always going to be different than your gross profits. Generally, business owners have two options for paying themselves:
- You can put yourself on the salary, as you would for any other employee
- You can take what is called an owner’s draw
There are benefits and drawbacks to both, and your franchisor may have a preference as to which one you use. In either case, the difference between your gross revenue and take-home pay will come down to taxes. Owners on a salary will see the same state, federal, Social Security, and Medicare taxes removed from their paycheck as other employees.
On the other hand, owners who take the owner’s draw can withdraw money from the company account without paying taxes, though you will have to pay self-employment taxes whenever you file your return.
One benefit of the owner’s draw, especially for those starting, is that it’s easier to cut your pay when profits are lower. That said, taking the owner’s draw means you aren’t able to count on a regular paycheck, and the amount you can withdraw depends on your profits. There’s also an element of borrowing against the future, as you’ll need to be sure that you’re accounting for the taxes you have to pay in the future.
I’m worried about hidden costs. How will they impact my profits?
Operating a business involves a lot of expenses, including insurance, payroll, and equipment. In contrast to those who open independent businesses, franchise owners usually get a heads up on what these expenses could be.
As part of the franchise process, you’ll receive a franchise disclosure document (FDD), which provides lots of helpful financial and legal information about your franchisor. One standard item in the FDD, item 7, will provide you with a breakdown of your initial investment and the expenditures you can expect during your first years in business. This will include:
- Your initial franchise fee
- Equipment
- Insurance
- Living expenses while you’re training
- Additional funds to cover various expenses
Some franchisors also require you to have a certain amount of cash on hand to cover your first months or years in business. In most cases, you will be provided an estimated range for each item, from the lowest to the highest you can expect to pay.
In item 6 of the FDD, you’ll be provided with a list of fees payable to the franchisor. This will include royalty and advertising fees, among other things, and they’re usually a percentage of your gross monthly revenue. In return, the franchisor provides continued support through marketing programs, technology updates, additional training, and more.
What will make my business more profitable?
It’s hard to say for certain what will make a business more profitable. There are a lot of factors that go into when you’ll break even, and some of them are out of your control. What you can do is put yourself in the best possible position to succeed, and franchising is a good step in that direction. Franchise owners have access to helpful resources, including:
- Market research to identify locations where the brand can thrive
- National and local marketing campaigns that attract more customers
- Innovative products and services that meet current consumer demands
- Business coaching and goal setting assistance
- Networking and learning opportunities with other members of the franchise system
Franchising in the home services industry offers additional competitive advantages, namely, the ability to lower initial investments and overhead costs by working from home. Many home services franchises, including those in the Home Franchise Concepts family of brands, can be successfully operated out of a home office. Though some brands allow for a showroom, if you’d like, it’s not required. Saving money on both the immediate costs of establishing a brick-and-mortar location and the long-term costs of running it may increase your opportunities to achieve ROI faster.
Get On the Path to Franchise Success
As leaders in home services franchising, the Home Franchise Concepts family of brands has helped countless franchise owners achieve their goals of owning a successful business. Start on your journey today – inquire now, and one of our franchise advisors will be in touch with more information about franchising with us.