Does A Low Cost Franchise Mean You Make Less Money?

Author: Colin Mackie of Enterprise 21

Date: MAR 22nd, 2017

Topic: Franchise News And Advice

Is it possible to buy a franchise system for $40,000 that will earn the same, or similar, bottom line to one costing $400,000?

A better question might be “Why do the prices of franchises vary so much?”

Let us look at two systems and make some comparisons: I will use two franchise systems that I know very well, but I will change the names just in case I upset one or the other – or both!

We will call one ‘Colin’s Coffee’ with an in-going cost of around the $400,000 mark, and ‘Bill’s Bookkeeping’ at a cost of about $40,000 and compare what we get for our money and what we can expect to earn.

The figures used are averages and would apply to many businesses in these industries – food and B2B systems.

CC can make significantly more, but certain circumstances need to be just right.  He could increase turnover, however this would mean that he had not already reached the optimum ‘sale per foot traffic’.  The percentage of people who will buy from CC is pretty much standard in most shopping centres.  Turnover can be seen as an amount per person who enters the shopping centre.  The shopping centre leasing agent will tell you this, but they cannot, and will not tell you, the number of feet (people) who will walk past your site. So you are really limited to within a few percentage points of increasing the turnover. The Franchise system will be pretty skilful at making the right products at the right price for their specific target market so your chances of increasing the sales are limited.  The opposite does not apply – grumpy, unhelpful, scruffy and rude staff will certainly decrease sales.

Wastage can be reduced thus decreasing the COS.  Slightly smaller and correctly measured portions will also help.

Wages can be reduced by the Franchisee working more hours or by using one of the state-of-the-art online roster systems such as Roster Portal, but again we are talking small percentage points.

So certain percentages can be tweaked, but they may not make a significant change to the end result. You could be lucky and get the best location in the shopping centre, but perhaps not.

And with BB, unless there is an option to outsource data-entry people, the only way to increase revenue is to work more hours.  Take your hours up to 60 per week, and you are certainly increasing you bottom line.  The CC franchise may well be working 60 hours in his business to keep wages low.

So, what does this all tell us?  It tells us that the cost of the actual franchise system is not a direct indication of what you might earn.

But let me throw in another wild card:  You buy the bookkeeping franchise because of all that we have stated above, but you don’t really get excited with figures and selling is something you abhor.  You will need to sell your services in the bookkeeping franchise and you can’t get away from doing the figures, so you will not be happy and you will not attain maximum performance: Wrong choice.

If you love working with figures (numbers – I love figures) and you like to speak to people and tell them how efficient you are and you are happy to work every possible hour, the bookkeeping franchise is for you: Correct choice.

Rather than concentrating on the price of a franchise and the potential ROI, it is much more effective if you first concentrate on you – what you like, what you love, what might excite you, what your attitudes and attitudes are, and what is you maximum borrowing capacity and then look at what is on offer in the market in your budget.  I can guarantee that if you love what the franchise is offering and you feel comfortable in this industry, you will make considerably more than buying a franchise because on paper it might earn a bit more.

If you would like to have an obligation free chat with Colin about your future business investment ideas you can register your interest here.