Franchising is an attractive prospect for many entrepreneurs, but just because you get all the benefits of being associated with an established brand does not necessarily mean you’ll find instant success without lifting a finger.
If you’re interested in investing in a franchise, one of the things you’ll need to understand before moving forward is the expected timeline for profitability. As with any new business, it takes time for franchises to become profitable. But just how much time?
When Does a Franchise Become Profitable?
As a very general guide, it can take between one and two years for a franchise to become profitable.
However, this is hugely dependent on the kind of franchise industry as the varying products/services, size, location and brand reputation will influence the expected profitability timeline.
Breaking Even
The break-even point refers to when your business‘s revenue starts to cover your fixed and variable costs, neither making a loss or a profit. It’s important to understand when this happens as it’ll give you a better picture of when you’re set to reach profitability.
Factors that Affect the Franchise Profit Timeline
Aside from the franchise’s individuality, there are several factors that influence how long it will take to reach the break-even and then profitability point.
Initial Franchise Fee
In order to start operating under a brand’s name and get set up for business, you will need to pay a franchise fee. Factor in your initial investments when calculating how long it will be until you reach profitability. These fees may contribute to a large part of your start-up costs.
Royalties & Recurring Costs
It’s also important to consider royalty fees – the ongoing payments you make to the franchisor in exchange for continuing to operate under their name and brand identity. When calculating a profitability timeline, you should factor these payments into your monthly expenses.
Other recurring costs may include things like marketing fees, which should also be deducted from your revenue.
Operational Costs
Fixed and variable operating costs such as inventory, equipment, wages, utilities, property fees and taxes are all also given, so factor these into your deductions. These costs can vary dramatically depending on the type of industry and the franchise.
Location & Competition
The location of your franchise and the surrounding competition plays a crucial role in how profitable you’ll be. An in-demand business situated in a busy area with lots of traffic is likely to reach profitability much sooner than a franchise that’s in a poorer location with higher competition.
A good franchisor will work with their franchisee to undertake careful location and market research.
Brand Strength & Reputation
Being part of a well-established brand with a solid reputation and robust business model will likely help you reach profitability sooner than you would with a younger, less well-known brand.
Marketing Efforts
A comprehensive marketing strategy with a good return on investment will help grow your franchise and bring in new customers, ultimately boosting your total revenue and speeding you along to profitability.
How to Reach Profitability Sooner
There are some things you can do to help reach your profitability goals sooner, but bear in mind that lots of these factors depend on your choice of franchise partner, so it really helps to do your research first.
- Tailored marketing campaigns
- Strong customer service and retention
- Streamlining and optimising operations where possible
- Periodic evaluations of the business to see where improvements can be made
If you put in the hard work at the start and are realistic about your expectations, the right franchise can help take you from strength to strength.
Profitability For Franchises Vs Startups
If a franchise can take 1-2 years to become profitable, on average startups may take 3-5 years, with the same caveats about being dependent on the industry and business model.
Along with being profitable sooner, franchises also have a smaller risk of failure. According to the British Franchise Journal, 99.5% of franchises succeed within their first three years, while it’s just 50% of startups that succeed over the same period.
Finding Success With Esquires Coffee
The Esquires Coffee franchise team works closely with each of our franchisees to ensure they’re set up for success from the very start. If you’d like to buy a coffee shop while benefiting from the expertise of an established, beloved brand, then why not apply today?
