Do franchise owners get paid a salary, or do they earn from profits? If they earn from profits, how much is the fee? Salary or Profit?
Technically, Franchise owners get paid by themselves. It means that they get into the franchise business to earn profits and not depend on a salary. It is because of this arrangement, the financial future of franchise owners is very promising. Even in the most competitive of markets, a franchise owner can still spin profits from sales and service transactions as well as an optional yearly salary.
However, according to Glassdoor, there are arrangements with big businesses where they pay their franchisees a salary. The national average salary for Franchise owners is $72,286 per year in the United States. Check the Glassdoor link here, and you can filter it by state.
Ways Franchise Owners Get Paid or Franchise Income Source
Sales and Service Profit
Profits from sales and service transactions are the lifeblood of a franchisee’s business. Profits accrue to a franchisee as a result of sales and service activities. After paying the overhead costs, this is what’s leftover (i.e., equipment costs and fees; inventory and supplies; staffing, salaries and benefits; a brick-and-mortar location).
Profit after Fees
There may be high up-front costs for franchisees who want to invest in company models with proven financial and organizational success methods. Franchise fees are two parts: an initial buy-in charge and a percentage of gross sales plus an annual lump-sum franchise fee.
For example, according to Investopedia, “Dunkin’ Donuts costs about $40,000 to $90,000 in initial franchise fees, 5.9% in royalties and 5% for advertising.” The first-time buyer’s price varies from $109,700 up to $1,637,700. A shop with $900,000 in yearly sales owes the business about $100,000. After adding the material cost of about $200,000, the franchisee is left with approximately $600,000.
After the expenses are taken into account, the profit reduces. Included in this are expenses such as mortgage/rent/utilities/labor/taxes, etc. Despite this, a franchisee working for a well-known brand will certainly wind up with a profit after the financial year, even if the owner’s hypothetical coffers are empty.
If a franchisor pays a yearly salary to a franchisee, the owner may potentially use the accumulated equity of a franchisee. If you’re a sole proprietorship or partnership, this option isn’t available for you. Owner withdrawals have an impact on working capital and may be taxed. All franchise owners contemplating accepting a salary should speak with a financial adviser or tax counsel to have their minds at ease.
Get Paid or Earn a Salary, Future of Franchising
Independent company owners must perform the hard work of business growth, branding, marketing, and product research, which a franchise owner may accomplish for them. Given the variables above, a profit plan exists, and the statistics point to a lucrative franchising business.