Most Profitable Franchises

What are the Most Profitable Franchises? An Introduction

A franchise is a business that distributes (or 'franchises') the rights to use its brand, trademark and business model to external parties (or 'franchisees'). Franchises have been a popular business model, with the first franchise likely having been developed by Benjamin Franklin in the 1730s.

Going forward to the 2020s, lucrative franchises offer many benefits to franchisees. For example:

• Having a proven business model and ongoing support from a franchisor can make operations much easier and cheaper (rather than the 'trial and error' approach to operations other businesses may use). Franchisors may provide support in areas like marketing and advertising, accessing technology platforms, site selection and lease negotiation, and building supplier relationships. When considering a franchise for sale, it's crucial to evaluate the franchisor's track record and the support they provide, as a reputable franchisor significantly enhances the likelihood of a successful venture.
• The brand recognition and loyalty associated with franchises make it significantly easier to hit the ground running when establishing a new franchise location. A franchise will already have an established target audience base - compared to a new business. The franchisor will also likely have insights about navigating the competitive target market landscape. All the contenders for the most profitable franchise in the world will have superior brand recognition within their target market.
• Consequently, any positive press or effective franchise marketing will help boost your franchise unit's brand - without any effort on your part. A franchisor will also share the marketing and advertising strategies that have been effective for them in the past, meaning you can replicate their success without needing to use an experimental approach. 
• Compared to other business models (such as independent startups), the franchise model offers a lower risk of failure. With a proven model, plus ongoing support from the franchisor, the chances of running an unprofitable business are significantly lower. 
• The final and most compelling benefit of franchise opportunities is their profitability. Compared to independent startups, franchises offer quicker avenues to profitability. Closer relationships with vendors and suppliers mean wider profit margins, and advertising support from the overall franchise brand can bolster revenue.

The benefits of franchises can be condensed to their faster, more convenient methods of growing profits. However, franchises can significantly advantage franchisors: contributing to their bottom line and extending the brand.

However, not all franchises are built equal. The highest profit franchises may not be what you expect. An experienced franchise consulting company can guide prospective franchisees through the complexities of choosing and managing the right franchise opportunity. In this article, we will break down the top money making franchises, what factors affect the profitability of a franchise and how to access the most lucrative franchises.

Which Franchise is the Most Profitable?

In franchise terms, profitability means more than return on investment (ROI). Moreover, high profits do not necessarily guarantee a franchise's success: rather, profitability means scalability, longevity, and stability during unpredictable financial conditions.

When locating a franchise with a high return on investment, taking a long-term view will likely be rewarding. For example, health and wellness are huge cultural trends currently, but that does not necessarily guarantee that a spa franchise business will continue delivering profits in the next decade (we'll explore this later in the article). The industry that delivers the most profitable franchise to own will deliver longevity, not to mention plentiful opportunities for expansion.

Consequently, for true financial and lifestyle freedom, you will need to take a holistic overview of the profitability of a franchise. Some questions you might ask yourself include:

• Does this franchise have high-growth potential? In other words, once you've succeeded in establishing your franchise opportunity, could you potentially take another?
• How much profit have other franchisees made over the course of their ownership?
• Does your ideal territory contain a sufficiently high demand for the franchise's products and services?

These are only a few of the questions that you might ask yourself during the franchise research process. Many prospective franchise owners seek the services of a franchise consultant to navigate this extensive process. A franchise consultant will also reconcile the revenue potential of a franchise with other factors that you may wish to glean from your franchise opportunity.

Moreover, though in this article, we focus predominantly on the most profitable franchises to own, there are other factors to consider when acquiring and operating a franchise, such as:

• Whether it has the flexibility you need for your ideal lifestyle. For example, if you prefer working from home, you might consider an accountancy or marketing franchise.
• Whether it matches your previous experience - though this is not an essential factor, your previous employment experience may contribute to the decision-making process. It's also worth considering your interests, as a franchise can be an ideal palette to explore your creativity and ambitions (as well as being a profitable addition to your entrepreneurial portfolio).
• Work-life balance and the level of involvement required. If you're looking for a low time commitment, some franchises might be unsuitable. The first step to identifying the right level of involvement in your franchise opportunity is to visualize your ideal lifestyle and then consider how it aligns with your work-balance goals.
• The franchise's reputation and loyalty. Has there been any recent news that may deleteriously impact the franchise's reputation? Alternatively, is it a high-growth, well-branded franchise beloved by its customers?

Ultimately, the right franchise opportunity marries your goals and experiences with sustainably high profits. It may, therefore, make sense to research the most lucrative franchises and filter the options from there.

Unfortunately, there is not one singular franchise that is more profitable than its counterparts. The good news is that there are hundreds of profitable franchises. Moreover, some of the most recognizable, multi-million dollar businesses in the world are franchises - including McDonald's, Subway, UPS, TaxAssist Accountants, and Swarovski (demonstrating the success of the franchise model when successfully deployed).

The factors that affect the profitability of a franchise are both related to the franchise itself (such as the franchisor's support) and external factors (such as the economic conditions). In this section, we'll explore the key factors that comprise the worth of a franchise, and how to calculate the profitability of an individual franchise opportunity.

Economic Conditions

The relationship between the franchise and its economic conditions is more complex than it may initially appear. A stronger economic climate equals higher consumer spending, which means more revenue on the table. The amount of disposable income in your target audience's pockets will inevitably influence your franchise's return on investment (not to mention how quickly the franchise can become profitable).

From the franchisor's perspective, better economic conditions will encourage them to open more locations. More profitable franchises with better support systems will become available for prospective franchisees. Yet, franchises can become profitable in any economic climate with franchisor support plus the experience of a franchise business consultant.

Innovation

Another external factor that can impact upon a franchise's profitability is innovation. The 2020s have been defined by a drive towards technological innovation (accessible AI, increasingly sophisticated customer relationship management tools, financial platforms, etc.). Franchisors that invest in the right types of innovation will end up becoming more profitable in the long term. Yet, a franchisor's attitude to innovation is not always within the franchisee's control.

The intangibility of factors like economic conditions and general innovation may make it seem like it is impossible to calculate a franchise's true worth. However, reviewing several key aspects of a franchise can strongly indicate its potential for profitability. These factors include the relationship between administrative and operating costs, and profits - alongside franchisor support and the competition.

Administrative Costs

Franchises come with a fee. These fees take different forms but often involve an initial fee that covers the rights to use the franchise (including manuals, training, etc.) and then an ongoing share of the royalties, which may be paid monthly. Continuous sharing royalties will obviously minorly dilute your profits, although, in some limited instances, you may be able to negotiate these fees (a franchise consultant will be able to discern when this is appropriate and how to approach this opportunity).

Profit Margin and Cash Flow

Though we won't dive into financial specifics, it's important to have an understanding of the interplay between a franchise business's crucial financial variables.

For example, the majority of revenue will likely be assigned to the cost of goods and services (COGs). While this is an unavoidable expenditure, a profitable franchise business will minimize Sales, General, and Administrative (SG & A) costs. Additionally, the franchisor's ongoing royalty fees should preferably not exceed the S G & A fees.

Reaching your break-even point should be one of your first goals - the break-even point being where your profits equal your initial investment fee and expenses. If you're unsure, a franchise business consultant will help you complete a break-even analysis.

Before making any type of commitment, it's important to review a company's financial statements (balance sheet, income statement and statement of cash flow) to identify any potential for financial losses. Financial statements will contain all the information about a franchise business. Again, if you're unclear about how to interpret the relationships between the line items on financial statements, consider using the services of a franchise business consultant.

Market Demand

We've already touched upon the importance of market demand. In a franchise context, market demand can be a highly effective indicator of the future success of a franchise. Researching and estimating a customer's lifetime worth and how many potential customers exist in your territory will indicate the kinds of profits that your franchise business stands to make. From there, you can research your current competitors in the market and how your franchise business will be able to outmaneuver them to get straight to the profits.

Competition

Researching your competition will help you determine how your franchise business can enter — and then gain market share — in your target location and demographic. For example, you could identify areas where your target market is underserved and tailor your franchise business's offerings appropriately. Understanding your local competition's unique selling points (USPs) will also help you develop a pricing strategy, effective marketing and advertising tactics, and any operational pitfalls to avoid.

Franchisor Support

As aforementioned, franchisors will provide many types of initial and ongoing support to their franchisees. The quality of the support will inevitably influence profit levels. When franchisors teach franchisees how to build long-term relationships with suppliers, optimize inventory management, and cut waste. Franchisors will also provide guidance when navigating the potentially choppy waters of budgeting, financial reporting, and troubleshooting operational challenges.

If possible, speak with other franchisee units ahead of committing to any franchise to hear about their experiences, including any challenges they've encountered and their experience of working alongside the franchisor.

Overall, calculating a franchise's potential and profitability will require a careful understanding of its financials (such as how much it will cost to operate, how much of its revenue is tied up in inventory, and the cost of goods sold), combined with qualitative factors like other franchisee units' experiences. Per franchise, a review will likely take hours - or you can save time and increase confidence by leveraging the expertise of a franchise business consultant.

Franchise consultants like Guerrilla Franchising will have studied all the available franchise opportunities and will be able to expertly identify and collate information about the highest-potential franchise business opportunities. Subsequently, you might be curious about the most profitable franchise opportunities - in the next section, we'll unpack the revenue potential of each franchise by industry.

What is the Number 1 Most Profitable Franchise?

The most profitable franchise opportunities change depending on internal factors - plus the attitude and experience of the franchisee.

Though it may not be possible to know exactly what franchise is the most profitable, a few industries are offering highly lucrative franchise opportunities. Let's explore a few of them.

• Food

Food franchises can take multiple forms, such as takeout, restaurant, and fast food businesses. Several of the world's most profitable fast food companies are franchises, including McDonald's and Wendy's. The benefits of food franchises include having a streamlined operational model and high bulk purchasing power, meaning limited operational costs are eating at the bottom line. Franchisees should be able to leverage the franchisor's network to negotiate bulk purchase agreements with suppliers for ingredients, packaging, and other supplies. Unlike other franchise industries, there's no delay in attracting customers - once you open your doors and start serving customers, you can begin to reap profits.

• Find out more about food franchises here.

• Gym and Fitness Franchises

Gym and fitness franchises have seen a surge in popularity in the last few years, fueled by contemporary fitness trends. It is estimated that the global fitness industry is worth nearly 100 billion dollars.

Gyms and fitness franchises have high-profit potential for several reasons. Firstly, recurring memberships and high customer loyalty mean a predictable revenue stream. Gyms can upsell supplementary services with a large profit margin, such as personal training, fitness merchandise, and nutrition consultations. Finally, franchise gyms will operate under a standardized business model that keeps costs low, meaning that there's none of the unpredictability or nasty surprises that can derail the profits of other businesses.

• Salon Franchises

Salons are one of the most popular franchise types - for good reason. Like gym franchises, salons enjoy recurring business and enviable customer loyalty rates. A predictable income stream makes salons an ideal franchise proposition for anyone looking for a low-risk addition to their investment portfolio. Local salons also offer a large customer base once they have established a positive reputation (which is easy to achieve if the franchisor also boasts a favorable reputation). A salon suites franchise provides a flexible and innovative business model for beauty professionals to run their businesses, which attracts a consistent and loyal customer base. Marketing efforts can also be highly effective on a local or regional level, boosting a salon franchise business's recurring revenue stream. 

• Construction Franchises

Again, recurring service contracts, like property maintenance or facility repairs, are a predictable source of revenue. Construction franchise businesses can also access high-value contracts, such as commercial projects, that, upon successful completion, mean large amounts of profit— fast. Construction franchisors will teach their franchisee businesses to operate with well-defined procedures for project management, quality control, and safety. This standardization will streamline operations, minimize rework, and reduce waste, developing profitability.

It is notable that this list of franchise industries is not exhaustive. There are plenty of other industries with high-profit potential, such as tutoring or education, accountancy, cleaning, and so on.

Again, profitable franchise businesses are not confined to one particular industry. Though sifting through and researching the financials of franchise business options can seem overwhelming, an experienced franchise business consultant can assist you in cutting through the noise and getting straight to the profit.

Find out More About Profitable Franchise Opportunities - Get in Touch.

Guerrilla Franchising has helped individuals across America access financial freedom by owning and operating top money making franchises. We work closely with our clients to match them with the best franchises, and then ensure they have all the tools they need to make their franchise opportunity a success.

If you're curious about how Guerrilla Franchising can help you achieve your entrepreneurial goals, book a free, no-obligation consultation with Dan Lorenz. A former Big 4 investment banker, Dan has owned and sold franchises for significant profit. Claim your free consultation worth $1,367 here.