Many investors considering purchasing a franchise are primarily concerned with profitability. If you are wondering, “Are franchises profitable?” it’s critical to understand that, while franchises can be profitable, it depends on the industry, business model, and number of units owned. It also depends on how well you manage your business.
Some franchise owners earn substantial incomes, while others experience challenges such as small margins, long hours, and modest returns. If you’re considering buying a franchise, it’s essential to understand what you’re getting into. Understanding profitability can be a first step towards making a more intelligent decision.
This article will look at profitability drivers, review industry earnings, and break down profitability by number of units. The valuable information in this article can help you decide whether franchising is the right choice.
Understanding How Franchise Profitability Works
Franchise profitability is driven by a simple equation: Revenue minus expenses equals your profit. However, the equation will play out differently depending on the business model and industry. For example, franchises like fast food restaurants may generate higher sales volumes but smaller margins. This is due to labor, produce, ingredients, and rent costs. Alternatively, passive income franchise models, like vending or ATMs, can offer smaller gross revenue but produce higher margins due to smaller operational costs.
Recent data suggests that the average pre-tax owner income for many single-unit franchises will average between $60,000 and $100,000. However, multi-unit owners will earn more, ranging from $140,000 or more. Profits can also be more significant if your franchise is efficient and well managed.
Owning the right franchise under the right circumstances and terms can be a recipe for success. In the best cases, you’ll gain access to a recognized brand, internal processes that have been organized and tested for success, and corporate support. These factors can help reduce some of the risks of independent business ownership.
Industry Comparisons: Which Franchises Are the Most Profitable?
Profits will vary depending on the industry, business model, location, and how well run your business is. We’ve compiled a list of essential data that summarizes average after-tax owner income, typical income ranges, and margins for several popular industries. This data reflects profits for single-unit ownership.
| Franchise Sector | Average After-Tax Income | Typical Income Range | Typical Revenue | Net Margin |
|---|---|---|---|---|
| Fitness (Gyms & Studios) | $90,000 | $70k – $130k | $600k – $1M | ≈ 15% |
| Food & Beverage | $100,000 | $80k – $120k | $800k – $1.2M+ | ≈ 10–15% |
| ATM Routes (Passive) | $30,000 | $20k – $50k | N/A (cash surcharges) | ≈ 70%+ of surcharge |
| Vending Machines (Passive) | $30,000 | $20k – $50k | $3k – $5k per machine/yr | ≈ 30–40% |
| Junk Removal | $85,000 | $70k – $100k (>$300k for large ops) | $300k – $600k | ≈ 15–20% |
From the table above, it is clear that food and beverage franchises are a strong revenue generator, but they come with higher operational demands and small margins. ATM or vending machine franchises offer more passive income potential and lower earnings per unit. Further, fitness and junk removal services can provide more competitive owner incomes and moderate margins.
Income growth by number of units
Depending on the industry, operating a single-unit franchise can yield small margins. However, multi-franchise unit ownership can dramatically increase income (after tax). Income across industries operates differently. In specific sectors, such as food and beverage, moving from single-unit to multi-unit ownership can be an entirely different ballpark regarding profitability.
For entrepreneurs looking for long-term ownership and higher profits, multi-ownership could be a more rewarding option.
| Franchise Sector | 1 Unit (After-Tax Income) | 2–4 Units (After-Tax) | 5+ Units (After-Tax) |
|---|---|---|---|
| Fitness | $90,000 | $96,000 | $146,000+ |
| Food & Beverage | $100,000 | $105,000 | $160,000+ |
| ATM Routes (Passive) | $30,000 | $33,000 | $49,000+ |
| Vending Machines | $30,000 | $33,000 | $49,000+ |
| Junk Removal | $85,000 | $91,000 | $139,000+ |
What Makes a Franchise More (or Less) Profitable?
Your choice regarding business model and industry will be critical. But your professional decisions as a franchise owner will be just as crucial to your ultimate success. However, the key factors that will make a franchise owner more or less profitable include the following:
- Number of Units Owned: Multi-unit owners earn more due to economies of scale. Many franchise groups earn 40–60% more than single-unit operators.
- Involvement: Hands-on owners often see higher margins due to tighter operational control. Absentee owners may earn less unless they hire exceptional managers.
- Discipline: Profitability depends on managing labor, inventory, and overhead. Franchises with strong systems make this easier, but they still require commitment.
- Brand and Support: A well-known brand with good training and support systems will often lead to faster profits and better customer retention.
- Location and Market: The best franchises can perform poorly in the wrong location. Site selection and analysis matter.
Still on the Fence? Contact Franchise.com Today!
If you’re wondering, “Are franchises profitable?” The answer is definitely yes. They can be profitable in many cases. They also provide the benefits of less risk compared to independent business ownership. However, profitability takes hard work and a solid strategy that involves choosing the right business that aligns with your goals. It will also take leveraging the support tools that are provided to you by your franchisor.
If you still have questions about how to start a franchise, the data included in this blog, or would like more information about available franchise opportunities that align with your goals, contact us today! We have years of experience guiding investors toward the best franchise opportunities that meet their unique needs.
You can also visit our Franchise FAQ if you have more questions.
