Return on Investment Defined



Return on Investment (ROI) is defined as the percentage of earnings gained on an investment, net of cost. Investors typically decide on which opportunities to partake in by estimating the return that they expect to earn.

Since franchising is an active investment rather than a passive one, it is necessary to include the time invested in addition to the financial investment into the calculation. Therefore a franchising ROI should be higher than that of an ordinary monetary investment.

About how much ROI should you expect from a franchise?

Typically a good ROI on a passive investment ranges between 10 and 15 percent. Consequently, the ROI on a franchise should be a bit higher than that to be worth your while.

The expected ROI will be directly affected at least in part by the skills and expertise that you offer to the franchise. The type of business, the business model, and the market will also be contributing factors.

In general, research demonstrates that greater returns typically transpire with financial investments of less than $200,000. Many times decent returns have been discovered even by beginning with cash of less than $50,000.

Factors to consider in determining the expected ROI from a Franchise

There is some important information that can be gathered by examining the Franchise Disclosure Document (FDD) of a franchise. This document should include the initial investment necessary to purchase a unit.

Additionally, you may be able to discover what the average earnings have been by other locations within the organization. It would also be helpful to find the earnings of a typical unit over its first three years of operation.

Depending on how much of this information is disclosed, you should be able to project an ROI for that franchise investment for three to five years.

Further, contacting other franchise owners could provide you with essential data on anticipated earnings.

Achieve the best ROI possible with your Franchise

In order to have the best chance of achieving successful results, one of the most important ingredients is to be sure that you are investing in a top quality franchise. The other is to be certain that your own offerings to the franchise with regards to skills, experience, and talents are a good match for the franchise.