Unraveling Franchise Earnings: How Much Can You Really Make?

Entering the franchise world can be intimidating, but having a clear understanding of what your likely return on investment is can make it less so. 1851 Franchise spoke with some experts to break down the financial aspects of owning a franchise to help potential franchisees form a realistic estimate of franchise earnings for a given brand. 

Item 19

Every brand in franchising has a Franchise Disclosure Document (FDD), and this is the first place you should look when determining how much you can make. Toward the end of the document, there is a section titled Item 19, which shows candidates the average earnings for existing franchise locations.

“It offers a snapshot of current franchisees' financial performances, serving as a window into potential earnings,” said Bennett Maxwell, founder of Dirty Dough Cookies.

Because Item 19 contains a lot of information, it’s important to know where to look for the most useful data.

“I think the most important, and probably the most overlooked, is the gross profit,” said Keven Elwood, chief development officer at Premium Service Brands. “That's the revenue minus what it costs to actually produce it and keep the lights on. It gives you a good idea of what the take-home amount will ultimately be.”

Navigating New Brands

New and emerging brands might not have enough data to include a comprehensive overview as it can take at least a full year of operation before a franchise can report gross sales and profits. In that case, Item 19 may not be helpful or even exist yet. If this is the case, there is another solution.

“In the case of newer franchise brands like Dirty Dough, the data may not be as comprehensive or reflective of long-term potential,” explained Maxwell. “To offset this, engaging in franchise validation calls is crucial. These calls connect prospective franchisees with those who have firsthand experience — the existing franchise owners. Direct interactions can provide valuable insights into day-to-day operations, challenges and real-world earnings.”

However, if a company that is well-established does not include helpful data in their Item 19, “that can definitely be a red flag,” Elwood noted. It could be an indicator that the revenue is declining or that units have been closing down. 

Other Factors To Consider

Item 19 provides a useful overview of what you are getting yourself into, but don’t forget to consider other facts such as the financial landscape and market conditions, especially within your given industry. Data in Item 19 is not a promise.

“An Item 19 is a great place to start, but thinking of those numbers as a guarantee is a mistake,” explained Bryan Lewis, founder and owner of Press Waffle Co. “The success of an individual franchise location is going to come down to the owner and the work that they put in.”

While Item 19 is not a guarantee, “it will show you if it’s able to be enough of a revenue-generator for what you’re looking for,” said Steve Beagelman, founder of SMB Franchise Advisors*. 

Maximizing Profitability 

While selecting the right brand can have a massive impact on your profitability, the earnings you achieve as a franchisee are not entirely out of your control.

“Stick to the operational systems and processes laid out by the franchisor,” suggested Maxwell. “These have been developed based on experience, expertise, and are designed to streamline operations and maximize efficiency.”

Another way you can boost your earnings is through local marketing. While the corporate team will often make marketing efforts on a broader scale, according to Maxwell, building local relationships can significantly bolster brand loyalty and patronage.

Above all, it is crucial to remember that the outcome and earnings of your business will largely depend on how you run it.