Six Factors That Impact a Franchise’s Time to Profit
Cara Squires, writer
Published at 10/06/2018, Updated on 04/05/2022 , Reading time: 5 min
When you’re deciding whether to invest in an interesting franchise, one of the first questions on your mind will be: “How much time will it take for my business to make a profit?” Though an exact answer is impossible to give, there are several factors which can impact the time it takes.
In business and investment, nothing is guaranteed. Wondering how long it will take for your new franchise to break even is natural, but receiving an open-ended answer can be frustrating. Do your research, talk openly with your franchisor, and bear in mind these six factors as you paint a picture of your franchise’s profitability.
How long does it take for a franchise to make a profit?
As mentioned above, laying out an exact time frame for profitability isn’t possible. So many factors are involved, such as:
Your franchise network’s size
Your franchise’s location
Your initial investment amount
The products and services you offer
The type of industry you’re operating in
Changing trends in the industry you’re operating in
Building a profitable franchise is likely to take at least two years, but once you’re there, you’re golden, and you’re nearly guaranteed to get there if you put in the work. In 2018, 97% of franchisees claimed profitability [British Franchise Association]. With this aim in mind, you’ll know that if you can handle the challenges of your first year as a franchisee, you’ll already be halfway to profit.
With franchising opportunities available in almost 100 different industries, every individual situation is unique. It can feel frustrating without a specific, concrete timeline to work to but false promises would feel equally frustrating if they were made and broken at a later date.
Your best resource, as you figure out exactly how long it will take your franchise to reach profitability, will be your franchisor and the data they have about the speed of success that your fellow franchisees were able to achieve.
Business ownership and the road to profitability
Compared to the profitability timeline of running your own business, which is started from scratch and built up, running a franchise is a far more stable and safe option. The solid, successful business model of the company is built into the experience, and it’s yours to take advantage of, from operational guidelines all the way to your pre-existing customer base.
If you’d love to be your own boss, but you need financial stability in your life, then franchising is a fantastic option. Most risks are removed, and failure rates are incredibly low, with fewer than 1% of franchises per year closing due to commercial failure [British Franchise Association].
You might think that choosing a better-recognised, larger franchise with a huge following would be the better option in terms of securing speedy profitability, but in the short term, that initial investment can cost a great deal more.
If you want your investments to pay off quickly, but you don’t have the financial means to make the big bucks investments, consider the type of sector you target carefully. Booming industries like finance, cleaning and pet care would be a few great places to start.
>> Read more:
- Trying to Finance a Franchise Without Money? Here Are Some Funding Options to Consider
- Franchise Financing: 8 Steps for Getting Help From a Bank
- How to Evaluate Franchise Costs
- Franchise Funding and Finance
Six factors that impact a franchise’s time to profit
1. Your premises
Home-based franchises are a cheaper investment, as premises costs aren’t required. If your franchise requires you to operate out of a store or office space, you’ll find it takes a lot longer to reach profitability. Monthly operational costs like rent and bills add up quickly and fit-out and set-up costs can set you back quite a bit.
2. The money you borrow to cover initial costs
If you don’t have the money you need to make that initial investment, you’ll most likely take out a loan and will therefore need to pay this back, inclusive of interest, over time. The repayment costs will take a chunk out of your bank account, slowing your road to profit.
3. Membership commitments take time
If you’re running a franchise that relies on membership, building a loyal customer base and achieving profitability is pretty much guaranteed to take longer. Membership is a commitment, and customers will think harder about it than they would about a one-off purchase. That said, once you find your members, your income is more stable than it might be in other business formats.
>> Read more:
- Franchising 101: The Official Franchise Start Up Checklist (Part 1)
- Franchising 101: The Official Franchise Start Up Checklist (Part 2)
- New Year, New Career: No Better Time Than Now to Start a Franchise Today
- Franchising 101: 8 Signs You're Ready to Start a Franchise
- Starting a New Business Doesn't Always Lead to Immediate Success: Here Are 5 Ways to Change That
- It's Never Too Late to Start a New Business
4. Your role and your employees
The more employees you’re paying to work for you, the more slowly you’ll reach profitability. Consider your role and what you can reasonably accomplish for the franchise alone, then hire others from this point. Try not to employ more people than is necessary.
5. Your number one priority - profit or growth?
As you prepare to sign a franchise agreement with your franchisor, you will need to put together a business model, inclusive of your goals for the franchise. As you do, you’ll decide what matters more to you - profit or growth. Or, in other words, when that money starts coming in, how will you handle it? Will you pay yourself a salary from the off, or will you invest the money back into the business to encourage growth? Reinvesting your earnings and any profits back into the business is tax-free as it is a business expense and will help your franchise to grow long-term.
6. Your unaccounted-for expenses
When putting together your budget and business plan, it’s easy to account for obvious expenses such as bills, initial investments, and monthly operational fees. However, not setting aside a budget for unexpected expenses will stunt your ability to succeed and reach profitability. Take into consideration things like maintenance and repair costs, administration costs and sales fluctuations.
Every stage of the franchising journey is its own adventure
Once you reach profitability, you’ll be able to look back on the period of hard work and growth with a smile. Then, you’ll have to look ahead and decide what you’d like to accomplish next. Every stage of the franchising journey is its own adventure, and your next could be anything from becoming a master franchisee to multi-brand franchising.
Cara Squires, writer