How to Determine the Profitability of a Franchise Opportunity

How to Determine the Profitability of a Franchise Opportunity

Buying a franchise is certainly a shortcut to starting a business without the headaches of a startup venture. There is far less fumbling and failing which often marks the early days of an independent business. As glorious as that sounds, the success of a franchise business does rest on judgment. That’s exactly why a close investigation of a franchise opportunity is necessary at the time of selection. Although there is no magic formula for the best evaluation of a franchise company in all sectors, there are some ways in which a more accurate determination of the profitability of a venture can be made. Let’s find out how.

Explore the following 5 key areas of the franchisor to find definitive answers:
Unit Growth

Start by looking at the growth graph of the unit. Is it doing well lately or has the overall growth always been good? To find an accurate answer to that, find out how many units the business has opened in the past few years. Magazines that publish such information also throw in other significant details that leverage decision making. So, grab a copy of a business franchise magazine and gather as many details as possible. Focus on the growth rate in the last 10 years and the reports will indicate if the opportunity is worth considering.

Sales per Unit

You want to look at the average sales figures of the top franchises in Australia before picking one. The sales figure per unit reflects the average turnover of the company. If the company is making ample profits, a franchisee is likely to earn their own from running a unit for it. However, you may find it difficult to learn the average sales figure every unit because companies do not disclose that kind of details to the public. Once again, a franchise magazine can shed some light on that.

Success Rates of New Franchises

How are the new franchises doing? That is critical to estimating how your business will perform in the current scenario. So before buying a franchise make sure that you have the rough figures of the success rates of the new franchises that have opened up in the past 3 years.

Ongoing Support

The level of organizational support extended by a company is a key factor in franchise operations. It’s a much bigger challenge to be a part of a business that makes its franchisees train their own employees and survive on their own. The top businesses offer great support to their franchisee units in areas concerning marketing, advertisement, training, recruitment, acquisition, litigation and more. So, make sure you are entitled to at least some of these when signing up as a franchisee.

Reviews of Franchisees

While you are at it, stop to quickly run through the reviews posted by other franchisees about this particular franchisor. You want to hear from the horse’s mouth how happy or unhappy they are with the business.

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