How to Understand Franchises Numbers
Understand the numbers you need to consider to review how strong a franchise or business opportunity is for you in this article here
Table of Contents:
What to know about franchises numbers
Revenues and expenses are great data points for figuring out the profitability of franchises numbers. But, here’s another statistic for your research toolbox: The increase or decrease in the number of franchised and corporate units (over 3 years). This metric tells you whether a franchise has added locations, or has lost locations over time.
But first of all, what is the difference between the number of franchise and corporate units (owned by the franchisor)?
Chains versus Franchises
Corporate-owned chains are owned and managed by a parent corporation. In other words, it is one large company that owns businesses in different locations. In contrast, franchised units are owned and operated by separate entities or investors through contracts with the parent company. For example, there may be a royalty fee paid by the franchisee to the franchisor.
What are the franchises numbers in the US?
There were 744,437 franchises in the US in 2017 and with a growth rate of approximately 2% per annum, and there should be over 800,000 in the country before the end of 2020. Clearly, with such high franchise numbers, franchises are a popular option. Franchises are much more likely to be successful than start-up businesses since less commercial expertise is needed and it tends to be easier to secure finance. National advertising campaigns and proven work methodologies are also additional benefits.
Franchises with Sustainable Growth
A franchise that shows sustainable growth is an encouraging sign. The franchises numbers that are well-known in the US have been operating for around or over 100 years. Hertz Rent A Car is nearly as old as the car itself starting in 1917. A&W was established in 1919. 7-Eleven was started in 1927 and now boasts 55,000 stores worldwide. And the iconic KFC was started in 1930, and now has 20,950 stores.
Mcdonald’s, the largest fast-food franchise in the world was started a decade later (1940) and has 37,855 stores as of February 2020. More locations mean more franchisees paying royalties and marketing fees. And more royalties and marketing fees give the franchisor the needed firepower to boost investments in support of the franchise as a whole in return.
Franchisors that are growing can better support franchisees with branding, marketing, research, and development.
But what about a year-over-year decrease?
If a franchise shows a year-over-year decrease, that’s a red flag. That signals a franchise in decline, and you need to find out exactly why the franchise is shrinking. In recent years, there has been a noticeable trend of both well-established franchises and corporate-owned chains closing down many of their locations.
