Often, when entrepreneurs or investors are beginning to explore a franchise investment, they start by looking for profitable, reputable brands with a quick breakeven period. It seems like common sense to suggest that the earning potential is different for each franchisee based on many different factors.
I’d like to start by saying that it is NEVER a Franchise Consultant job to make an earnings claim to you. So if you’re getting that kind of information from a Franchise Consultant, you should fire them immediately!
Most franchises will disclose to you their average unit economics, their average unit breakeven. But before I get into those factors that can affect the breakeven period of a franchise business, it’s important to define what a breakeven period is… and there is more than one definition.
The first definition is an “Operational Breakeven.” For example, if it costs you $10,000 per month to run your business, when will you have enough monthly revenue coming in to cover $10,000 worth of operating expenses?
The other way that many people use the term “breakeven” is actually more like the “Payback Period.” If it cost you $150,000 to get this business open… how long will it take to get $150,000 back out?
And it’s important when you’re validating a franchise opportunity, to identify to the franchisor, which of these definitions you’re inquiring about.
There are many factors that could be used to determine an average breakeven period in a franchise. The simplest answer is to go out and interview existing franchise owners in that franchise and see what they’re doing and how quickly they hit their breakeven, and consider that the “average.” But really, who is starting a business to be AVERAGE? Is average really inspiring? What’s worse is when people use the average performance in a franchise as a reason to walk away from the business because the average performer isn’t making the kind of money that THEY want to make. As the Franchise Consultant, I’m shaking my head saying, “Are you going to take any ownership in this business?” This isn’t plug and play, it takes hard work! And the more work you put in, the more reward you’re likely to find.
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