How Does a Franchisor Make Money | Franchising Specialist

How does a franchisor make money?

Most people assume that making money from franchising a business comes from the franchise fees. However, this is not the case, in fact usually the franchise fees are a loss leader. The money comes from royalties, the ongoing fees that the franchisees pay to the franchisor on a regular basis as either a flat rate or a percentage of earnings.

If you are thinking that franchising your business will make you rich quick though, think again. It takes on average between 18 – 22 months for a franchise to break even which explains why it is so important to screen correctly for the best people to run your franchise. This may not necessarily be the most qualified person though, rather the person with the right attitude and a willingness to work within franchise guidelines.

All franchisors strive for their franchisees royalties to cover the overheads of the franchise, known as Royalty Self-Sufficiency, and the earlier that a franchisee can reach this point the better it is for the franchisor. In order to reach this point as early as possible, it is vital to have clear strategies in place:

  • Invest in the right people to be your franchisees. A good screening process is vital.
  • Have strong communication skills, enabling you to face up to having difficult conversations when things are not going to plan
  • Have systems in place to allow you to spot franchisees that may be underperforming for whatever reason.
  • Have programmes in place to provide extra support to those franchisees to bring them back up to speed.
  • Be prepared to make exceptions for high performing franchisees

The most important thing to remember is that the success of your franchise relies as much on the person you choose to be your franchisee as it does on you being a good franchisor. Strong leadership, good strategies and robust processes to detect problems early, all combine to create a successful franchise system.

If you have any questions or need any help in relation to any aspect of franchising please free to call us on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.

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