How Much Does It Cost To Open A Franchise, How Much Can I Earn?
As the old saying goes, “you have to spend money to make money” as far as franchising is concerned, you can spend as much or as little as you want and still make money. When it comes to franchising its essential to decide what franchise business is right for you.
Another aspect of profitable franchising is to choose a particular industry segment that you are familiar with and passionate about. Fast food, coffee, pet care, and early childhood education are some of the most popular franchising options. As long the cost of opening a new franchise is concerned, the cost of market entry in any industry segment can cost anywhere from £15,000 to £200,000 and more.
Different Costs from the Franchisor
Franchisors are clear about the costs involved in being a part of their system. The most common costs that you have to incur from the franchisor includes the franchise fees, marketing costs, royalties and grand-opening costs.
A franchisor will provide you with a ballpark figure that you have to work with. This amount will include all the costs already mentioned including the initial operating costs needed to start the franchise business.
As a franchisee, you have to reach some pre-determined goals set by the franchisor in the Disclosure Document. This document includes key information about the franchise business including its history, annual turnover, the investment needed and other obligations mentioned in the Disclosure Document.
Front End Investment Vs Low-End Franchising Costs
At the front end, the franchisee costs will include paying the franchise fee and royalties. Other costs include choosing the right location, getting furniture and equipment, and investing in quality human resource.
To make your franchise a success, you will need to rely on the best talent to run your franchise. Front-end investment is usually for a major franchise brand that specializes in fast food, coffee and education; these popular franchise types are perfect for front-end investment. A high-end brand would require a minimum investment of around £30,000 to £120,000 or more depending on the brand you choose. Each brand has its own requirements and equipment.
On the other hand, you can opt for low-end investment options and choose to operate a small van based or home based franchise. This type of franchising does not require substantial setup costs, royalty costs and other expenses. You need as little as £10,000 to start a small home-based or mobile franchise.
Supplies and Equipment Cost
Franchising is a better option than a start-up but it has it does incur expenses that you as a franchisee have to consider. One such cost is the expenses incurred from supplies and equipment. Whether you plan to open a fast food franchise or a pet care franchise, you will need different supplies to run your business successfully.
You’ll need stationery, furniture, electricity, water, gas, toiletries and many other things. If you open a pet care franchise, you will need kennels, dog or cat food, litter boxes, water and food bowls and much more items that you will need on a daily basis. It’s essential to have a budget that helps you get an estimate of the total working capital you would need apart from the upfront expenses.
Inventory Costs Incurred by a Franchise
If you plan to buy a retail franchise or to invest in a small home-based franchise, you will need to consider the inventory costs. Since the business operations of each franchise are different, you will need to manage the inventory according to the business. You will need inventory at a projected cost of £10,000 or more to be safe during the initial months of your franchise business.
Non Franchise vs. Franchise Cost
Starting your own independent business is difficult as compared to investing in a franchise. It’s much difficult to pool your financial resources to start your business. On the other hand, arranging capital for your franchise business is considerably easier, because some franchisors offer financial assistance with simple terms and conditions to help franchisees.
It’s challenging a new start-up to get a big chunk of the market since it’s new on the market. You will need to spend more money on advertising and promotion if you have an independent business because you will need to spend a lot of capital on promoting your new business. If you choose to be a franchisee, you won’t have a hefty advertising budget since the brand is already well established with sufficient customer awareness to start your business.
If you choose to be a franchisee, it’s possible to save a significant amount of money since the franchisor will provide all the training that your workforce needs. An independent business or a non-franchise unit will have to incur the training and development expenses since it’s your own business; you have to train your employees, which will cost you a significant amount of working capital.
How Much Do You Expect to Earn from Franchising?
Your earnings from the franchise business vary on a number of different aspects such as the location of your franchise store, the brand you’re involved with and the market share the franchisor enjoys. Your return on investment will vary depending on the number of sales per annum, the royalty fee, franchisor fee, initial working capital and marketing costs incurred.
Don’t expect to start making a profit within the first year of your franchise business. Over time, your profit margin will continue to improve as you gain more customers. On average a medium-sized franchise with average market share can earn up to £50,000 in yearly profits, the rest depends on your organisational and marketing strategies to attract more revenue. Expect to earn more profit as your target market increases by offering one of a kind products or services.
Earning Potential of a Franchise
When most people think of a franchise, the first image that conjures up in mind is a fast food or coffee based franchise. These franchises are the most expensive to set up; their initial investment costs are higher than any other franchise since they have a number of different moving parts.
However, these franchises offer the highest returns, especially coffee franchises, have a promising future if services are based on what the target market wants. A well-operated fast-food franchise can be a successful cash cow if done right.
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