If you have read my columns from time to time you will know that I am not necessarily a fan of purchasing a franchise. The major factors in my saying this are two-fold. First, while ostensibly you have your own business, you are really not the owner and must adhere to an ominous franchise agreement that was meant to benefit the franchisor.
Second, the franchise fee that is typically charged is usurious and is the last thing a start-up needs while trying to get off the ground. These fees are typically taken off the top, so it has a deleterious multiplier effect on your net income. After all, why do you think that the average Joe doesn’t start a McDonald’s franchise? With all this laid out on the table, franchisors have come around and have realized that their ultimate success depends on the franchisee.
There are potentially lucrative low-cost franchises you can launch with $15,000 or less, in fields ranging from event planning and real estate to travel. A franchise isn’t for everyone, however it is right if you want a shoulder to lean on as you begin. Entrepreneurs opt for this model because they can buy a proven business concept and get marketing, job training and management support from a national franchisor.
Although franchises make up only 4% of small businesses, it’s an industry that generates more than $2.1 trillion and employs 18 million Americans. The average initial franchise investment is $250,000, excluding real estate, according to the International Franchise Association (IFA), and average royalty fees paid by franchisees range from 3% to 6% of monthly gross sales.
According to Eric Stites, CEO and managing director of the Franchise Business Review, “Many people think you need hundreds of thousands of dollars to buy a franchise business, but the reality is that there are some great low-cost franchises that can provide a very high return on your investment in the long run.” The Franchise Business Review is a good place to start, as they rate and recommend franchise opportunities. Here is a quick synopsis of their top 5:
- Start-up costs: $9,800
- Royalty fees: 1.5%–3% of annual commissionable sales
- Average annual sales: $336,971
- of U.S. franchises: 1,200+
Complete Weddings + Events
- Start-up costs: $10,000
- Royalty fees: 8% of annual gross revenue
- Average annual sales: Not disclosed
- of U.S. franchises: 192
Showhomes Home Staging
- Start-up costs: $10,000 (*Based on 2018 data)
- Royalty fees: 10% of annual gross revenue
- Average annual sales: $377,258
- of U.S. franchises: 55
- Start-up costs: $10,500
- Royalty fees: Print production costs (costs vary)
- Average annual sales: $148,222
- of U.S. franchises: 176
- Start-up costs: $10,995
- Royalty fees: 1%–3% of gross commissionable fares
- Average annual sales: $273,978
- of U.S. franchises: 2,569
With reduced upfront costs and lower franchise fees, it is now easier to jump into the game and be in business. Many now are realizing that they don’t have enough money saved for retirement, and are looking for additional sources of income. According to Mr. Sites at the FBR, “Franchising is about to experience a significant growth spurt over the next decade.” Worth a look if you think it’s for you.