Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-212-3423.
Spicy Pickle plots growth curve
The above article lays out the revenue for this relative startup franchisor. $221,643 in franchise fees and royalty in the 1st quarter, but still recognizing a quarterly loss of $538,229. The loss is mostly likely due to higher marketing, commission, and administrative expenses.
Franchisors make the most money on the front end with the franchise fee – a one-time windfall of $30,000 for the franchisor from which their variable costs involve commission to the sales person and some executive time – with related expenses of manuals/documents, site selection assistance, and training delivered over the next year.
A small franchisee may produce $350,000 in gross sales, meaning the 6% royalty will generate $21,000 over a 12 month period plus a few thousand in vendor commissions and other revenue. With the average franchisor selling 12 franchises during the life of their business, it is easy to see why many franchisors struggle despite the illusion of rolling in the money dough. The profitable franchisors sell new franchises at a fast and consistent clip.
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Interesting, I hadn’t thought that new franchisors would also be subject to what Bob Purvin called “Franchise Fraud”.
You said that “Franchisers make the most money on the front end with the franchise fee”. It is said that company loss $431,540 last year on revenue of $873,531 due to operating expanses amounted to almost $1.37 million.