Franchise Cost vs Franchise Model

One of the questions that I always get when talking with prospective clients is, “Is there a correlation between the cost of the franchise and the potential return?” The answer is no.? But there is typically a correlation between the cost of the franchise and the business model that you get for that investment level.?

Let me give you some examples of that. When we look at the franchisor's investment levels, as outlined in Item 7 of the FDD, it outlines total estimated initial investment ranges. There are three different ranges that we'll take a look at today and what business models correlate with them.?

Home-based or Mobile Owner Operated Franchises

In the $100,000 and less investment level you will find home-based or mobile owner operator models. In these models, the owner is involved full-time in building the business and they scale that business by adding customers and adding employees to serve the growing customer needs..

Executive Level Franchises

Then there's the $100,000 to $250,000 range. This could include everything we've already talked about at the $100,000 and under range, but now we have a lot of variety to work with.?

In this investment level we can still see the owner operated options, but we will also find “Executive” level type franchises where the owner not only occupies a seat in the business, but they hire other operations staff to support their efforts.? We also will see semi-absentee business models in this category.?

This investment level will typically require a small office location,? light industrial office or a Class B or C retail location.

Brick & Mortar - Location Based Concepts

You’ll find that most franchises in the $250,000 and up range will require a “brick and mortar” location to operate from.? This is usually a retail type concept such as haircare, daycare center, quick service restaurant, fitness and beauty franchise.? These models require employees to start a buildout with specifications of the property, as well as product, or inventory, and even equipment to operate the business day-to-day. The franchise owner doesn't always have to be involved full-time in this type of investment level, yet they may hire an operations manager to oversee the day-to-day.

If you're not sure what investment level and business model might be a good fit for you, let me know. We can work through that.?

And remember, there's no correlation between the cost of the franchise and the potential return.