To me, one of the more frustrating franchise statistics repeatedly quoted is average income. Inevitably, this statistic always suggests that the typical franchisee earns $100,000+ per year. To cite one example, the USA Franchisee Statistics page on www.franchiseseek.com states that “In 2000 …. over 30% of franchisees earn over $149,000 per year.” I recently read a press release citing a similar figure for 2009.
It is my opinion that such a high figure falls into the “too good to be true” category. In a country where the average income is under $50,000 a year and the unemployment rate is in the 10% to 20% range, this figure just doesn’t sound right. Even in good times, such a high average income sounds exceptionally good. If we are in a recession, as I believe we are, is it possible that franchised business operations are a safe haven offering a guaranteed substantial income during these difficult economic times?
The National Franchisee Survey asks respondents to report if their business was profitable and, if profitable, their profitability over the most recent calendar year (2009). Our preliminary findings are that only 3% of respondents earned more than $100,000 over the past calendar year and only 15% claimed to earn in excess of $50,000 a year. This is quite a contrast to the $149,000 figure cited above. Being in the early days of the survey, which will run for most of the calendar year, it is difficult to determine if these percentages will remain consistent. At the other extreme, 61% of respondents state that their business is not profitable.
To be clear, none of this is suggestive of problems in the franchise industry. The economy has ended an overheated phase where too many people paid far too much for businesses. They financed their businesses rather than starting slow and building through natural growth. Overly optimistic revenue projections were used to justify high purchase prices, opening expenses and operational expenses. These businesses, and their owners, now are saddled with financial obligations that many are unable to pay out of current revenues. Consolidations (closures) are inevitable.
To further put these percentages in perspective, it is generally accepted that most small businesses do not survive their first ten years. And we have gone through a period of approximately ten years during which the economy expanded to a point where it is no longer sustainable. This leads me to assume that a higher percentage of small businesses are operating at reduced profitability than at any other point in my lifetime.
FranchiseFacts explores franchisee profitability in detail as part of its National Franchisee Survey. In the coming months, we will attempt to provide a more detailed understanding of this topic. The insights we provide will remain preliminary since the survey is currently in progress. Results reported in this blog are subject to change as more surveys are received throughout the year. Once the survey is closed, our final report will make this information available in its totality.
In the coming months, this blog will look closer at some of the attributes and demographics of profitable franchises.
FranchiseFacts – Capturing the franchise experience
Perry Shoom, FranchiseFacts
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