If you dream of becoming a business owner, the thought of creating a business from scratch may be overwhelming. That’s the beauty of franchising. Entrepreneurs are able to realize their dream with less risk of failure.
As a result of your investment, you are equipped with a proven business model from a recognizable brand that can help you grow your customer base. Just like any investment, you want a return on that money, and you want to position yourself for a profitable future. As you plan financially for franchise ownership, you need to understand the term, “Return on Investment” or “ROI.” Crunching the numbers to discover your potential return will make you a savvy business owner, as you determine what to expect as a reasonable franchise ROI.
What is ROI?
Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.
This is a popular term which lets you know how well your money is doing and whether if you’ve recouped your original expenditures.
ROI is simple math. You divide net profit or loss by your initial investment. ROI is written as a percentage or ratio.
When your calculations produce a positive number, you are operating in the black. Conversely, when you yield a negative number, you are functioning in the red which means you are taking a loss. If that is the case, it may be time to change a few things operationally in order to increase your return.
What is a Good Franchise ROI?
Analysts believe that over time, an average annual return of 5 to 12 percent on your passive investment dollars is good, and anything higher than 12 percent is excellent. However, experts caution that technically, a franchise investment is not passive, because you as the franchise owner are actively participating in, or at a minimum, actively managing the business. Franchise ROI can get a bit tricky here as you calculate your labor into the equation. Because you are looking for every part of your overall investment, which includes your time and talent. With a bit of tweaking, a good franchise ROI should be in the neighborhood of about 15 percent.
Franchisees will tell you that partnering with a franchise brand removes a bit of the fear of business ownership. But not all. Ultimately, you are still making a significant investment – either with your own capital and/or a loan – and you want to recoup that outlay and begin turning a profit as soon as possible. There is your initial investment, franchise fees, and ongoing royalties you pay that will affect your bottom line. But the upside is, that investment comes with a safety net. While there is risk in any business, having the training, guidance and support of your franchisor is significant to your success.
Therefore, profitability is very dependent on the franchise you choose. Prospective franchisees may think investing in a cheap franchise will yield a higher profit and provide a solid ROI. That’s not always true. You need to crunch the numbers. The best way to determine whether or not you are making a wise investment with a positive ROI is to study the Franchise Disclosure Document (FDD).
Wild Birds Unlimited Profitability
At Wild Birds Unlimited, we are very transparent with our numbers. Our franchise locations are seeing a good ROI, with our 2020 average gross sales for stores open for a full year at $687,516 and top half gross sales at $942,543.
We are a successful nature and wildlife franchise that’s been around for 40 years with 350 stores in North America. We are a niche franchise catering to bird enthusiasts and backyard bird watching hobbyists who want to get close to nature.
There is good money in the bird feeding industry, but while numbers are certainly important, it’s equally important for the return on your investment to include the satisfaction of partnering with a brand that you are passionate about.
If you want to learn more about becoming a franchisee with Wild Birds Unlimited, fill out this form and download our franchise report which has all the nitty gritty details on how you can come fly with us!