Predicting Franchise Revenue: How to Calculate Income

The first question to ask before buying anything is, “How much does it cost?” If you’re buying a franchise, the second question should be, “How much can I make?” You may dream of huge profits, but the reality may be earning a comfortable living, barely breaking even, or worse, losing money. There are no guarantees.

But there are ways to predict which investments offer the best potential for profit.

To do this, you need to understand how to estimate franchise revenue and calculate return on investment. Whether you’re a first-time franchisee or looking to expand your portfolio, mastering these calculations will equip you with the tools to select the franchise opportunity with the most potential.

Start with the Franchise Disclosure Document

There are several different places to look for numbers that will give you an idea of what a franchise can earn.

The most reliable source of franchise revenue information is the franchise disclosure document (FDD), which franchisors are required to provide to prospective franchisees. Look specifically at Item 19, where franchisors provide financial performance representations, including average sales, gross revenues, net profits, or other financial metrics. Not all franchisors choose to include this information, but if they do, it's a valuable resource.

Current franchisees can provide insights into actual revenues and the financial realities of operating the franchise. They may offer a candid perspective on how much they earn, what factors influenced their revenues, and how closely their experiences align with the franchisor’s projections.

Several third-party websites and publications rank and review franchises, sometimes including financial performance data. These sources can offer additional context about typical earnings across similar types of franchises.

Approach the Numbers with a Critical Eye

Keep in mind that franchisors aren't obligated to provide any specific franchisee revenue figures in Item 19 of the FDD. Even if they do offer financial performance information, you need to approach it with a critical eye. The numbers may be a range of earnings for a certain percentage of franchises. For example, "X% of our franchises fall within a revenue range of $Y to $Z.” Or they may be an average, based on a specific timeframe or a particular group of franchises, like only franchises operating for over 5 years, or only company-owned stores.

This vagueness is primarily because the FTC has guidelines to prevent misleading claims, so franchisors can't make unrealistic promises about earnings. Plus, even within a franchise, profits can vary widely due to factors like location and management style.

Calculating Franchise Return on Investment (ROI)

The limited franchise revenue information provided by franchisors makes calculating a precise ROI challenging. However, you can still estimate your franchise return on investment using the following approach:

Take the franchisor's average revenue range and adjust it based on your research (franchisee discussions, industry reports) and local market factors. Be conservative in your estimates. This is your projected revenue.

Next, estimate your cost. Factor in franchise fees, royalties, and other monthly obligations to the franchisor, as well as operational expenses including rent, payroll, and marketing costs. These are your projected expenses.

Subtract your projected expenses from your projected revenue to get your net profit.

Calculate your total investment by adding the initial franchise fees, startup costs, and ongoing operational expenses for a chosen timeframe, like the first year.

To calculate ROI, use the standard formula: ROI = (Net Profit / Total Investment) x 100.

Remember, this is an estimate, not a guaranteed outcome. Your actual ROI will depend on various factors, including your location, management skills, and economic conditions. No franchisor can predict or guarantee profitability.

Why You Should Franchise with Two Maids

The value of the franchise goes beyond just the ROI. You need to consider factors like brand reputation, training, and support offered by the franchisor.

Two Maids is a well-known, trusted, low-investment franchise. All of our new franchisees take part in our intensive franchise training program and are supported not only by us, but by our parent company, Home Franchise Concepts. In business for 21 years, we have more than 100 units across the country, a number that’s continuing to grow. We are proud to continually rank on Entrepreneur’s Franchise 500 list year after year.

Get Started with Two Maids Today

Contact Two Maids today to find out more about franchising with one of the nation’s top residential cleaning companies. Our Franchise Advisors will help you understand what it will cost to franchise with us, so you can estimate your potential return on investment. And they’ll help you see how the rewards of franchising with Two Maids extend far beyond just the profit you could earn.