How Does a Franchise Make Money
The amount of money a franchise makes is dependent on its earning potential as well as several other factors that are unique to the business.
All in all however the way a franchise profits is basically the same.
When it comes to the earnings of a franchise there is no real concrete amount or percentage a franchise makes out of the business. This is because each franchise is different, they have their own predefined set of royalty fees and other franchise expenses which are those that regulate the amount of money that the franchisor reaps in as profits.
To track how a franchise makes money we would have to go down to the core of expenses. First a franchise gathers supplies, either from a supplier or makes them himself and ships these supplies out to the franchisees. Some franchises are so strict with what the franchisees have to offer at their branches and require that all the tools, equipment and supplies be purchased directly from the franchisor. This is where a considerable amount of profits are reaped in by the franchise since they gain sole control over the product consumption of the franchisees.
Other factors include the cost of the initial startup fees as well as royalties and other franchise fees. These all vary according to how much the franchisor wants to add to his or her profits. The prices of these could go as low or as high as the original price. It all really depends on the percentage that a franchisor is willing to add to the franchise amount. With this amount also comes the regular royalties that the franchisee has to pay to continue using the company brand name and trademark with their operations. Marketing and advertising fees may also come separate or be collected at a regular basis by the franchisor which is also a way in which they reap more profits.
Basically the franchise makes more and more money based on just how successful the franchisee is with the business. This is because the annual or regularly royalty fees that have to be paid to the franchisor are based on the percentage of how much the earnings are of the company. Therefore the higher the earnings the higher the franchisor makes out of the franchisees.
The franchise agreement, contract and other legalities which holds the franchisee legally bound to the franchise company may also vary according to how much the franchisor wishes to put down on paper. These amounts are what makes a franchise earn money. What is written down onto the franchise agreement is what the franchisees have to follow strictly once they sign it. Therefore, franchisors are very powerful and can regulate the amount of cash influx they receiver if they properly tabulate the expenses and profits that can be made out of the company as well as its corresponding franchises. The earning potential of the franchise therefore fluctuates from time to time based one the earnings of the franchisees and other factors that may directly affect the company itself.