Franchising is one of the most popular ways for people to start a business. It’s easy to see why – you get to own your own business but still have the support of a larger corporation. It can also be much easier to set up a franchise with a well-established business model than to start your own business from scratch. But getting started with a franchise can be a daunting task – especially when it comes to choosing the right franchise for you. Hopefully, this article will help you out with that.
First, let’s very briefly summarize what franchising is and how it is done. To start a franchise, you first pay a franchising fee to the franchise company. This initial fee only gives you rights to open a franchise – you still have to pay to set up the business and to operate it going forward. The upside of franchising is that you get access to a well-established business model, training and support from a larger company, and an already established brand. However, the downside is that you must follow the established business model (so you have less room for creativity and innovation), the annual fees you pay to the parent company are usually based on sales rather than profit, and you often must commit to running the franchise for several years. Whether the pros outweigh the cons for you depends on your own unique circumstances.
However, if you’re sure you want to own a franchise then your next step is deciding which one. There are hundreds of opportunities out there – and finding the best one for you can feel overwhelming. There are coffee franchises, car wash franchises, burger franchises, pizza franchises – you name it!
To help with this, we have found the franchises that we believe are the best based on a few different criteria: money making potential, highest growth, lowest start-up costs, and passive income.
(Please note that all data provided here are the most up to date as of the writing of this article and may change over time.)
Franchises that make the most money
The category you are most likely interest in is: which franchises will make you the most money? These are likely the names you have already heard – they make money because they are famous brands that attract many customers. However, they also tend to have high startup costs – often millions of dollars. And it is important to note that revenue can vary hugely from store to store, and profits are never guaranteed.
Chick-fil-A has been on a hot streak over the last few years. Its sales grew by 16.7% in 2018 to become the nation’s third largest restaurant chain. Joining this massively successful restaurant franchise makes you all the more likely to succeed. However, it is important to note that Chick-fil-A runs an ‘Operator’ model – meaning you don’t actually own the business. Also, you must be actively involved in the running the business and cannot own more than one location, so it’s not an ‘investment’ franchise. While this business model has been a major factor in Chick-fil-A’s success, it does make this franchise the wrong choice for many people.
Below are some data we have compiled about Chick-fil-A franchises, as well as some pros and cons.
|2018 Av. Sales/Franchise||$4.2M||Total Set-Up Costs||$10,000|
|2018 # of Franchises||2,400||Ongoing Fees||15% of Sales and50% of pretax profit|
|2018 # of New Franchises||175||Required Liquid Assets||N/A|
|Franchise Fee||$10,000||Required Net Worth||N/A|
|Extremely high sales per store||You do not own the business; you only operate it for the company|
|The company pays all set-up costs, so the only cost to you is the franchise fee||You cannot be actively involved in any other business ventures when operating a Chick-fil-A|
|Plenty of growth opportunities – they currently have franchise opportunities in 29 states||Very difficult to be accepted as an operator – only 0.4% of applications get accepted|
|Extensive training and ongoing support||Cannot operate multiple locations|
|Low franchise fee|
Fun fact: A Chick-fil-A restaurant makes more money per store than a Starbucks, KFC, Dunkin Donuts, Subway, and Baskin Robins combined.
The Golden Arches – McDonald’s. Probably the most famous franchise in the world, and definitely one of the most profitable. McDonald’s has been franchising for decades, and they are a market leader in business operational efficiency. So, while owning a McDonald’s doesn’t give you much creative freedom, you know what you’re getting and what you’re getting has made billions of dollars.
|2018 Av. Sales/Franchise||$2.769M||Total Set-Up Costs||$1M – $2.2M|
|2018 # of Franchises||13,914||Ongoing Fees||Average 10.7% of Sales|
|2018 # of New Franchises||-122||Required Liquid Assets||$500,000|
|Franchise Fee||$45,000||Required Net Worth||N/A|
|Possibly the most well recognized restaurant brand globally, so you don’t need to spend much on advertising or attracting customers||Recently, McDonald’s has started closing stores; with over 13,000 stores in the U.S. alone, this may indicate an over-saturation in the market|
|Can own multiple locations||Cannot choose your own location for a franchise|
|Extensive training of 12-18 months||High liquid asset requirement to apply|
|Strong ongoing support from the company||Extremely high total start-up costs|
Panera Bread takes a somewhat different approach to their franchising – they actually require that their franchisers open multiple locations. According to the company’s website, franchisers are expected to open “…typically 15 bakery-cafés in a period of 6 years…” in a specific territory to which they are assigned. This make Panera a great opportunity for those looking to quickly expand their franchising portfolio. However, it is likely not a good fit for anyone just starting out in the franchising industry.
|2018 Av. Sales/Franchise||$2.74M||Total Set-Up Costs||$1.1M – $3.5M|
|2018 # of Franchises||1,131||Ongoing Fees||~10% of sales|
|2018 # of New Franchises||50||Required Liquid Assets||$3M|
|Franchise Fee||$35,000||Required Net Worth||$7.5M|
|Can own multiple franchises||Must open multiple locations in a set time period|
|High sales per location||Very high net worth requirement|
|International franchise opportunities||Very high liquid assets requirement|
When looking at a franchise, a key factor to consider is the risk of having to close it down in the future. While having to close a franchise can be caused by several factors, the main one you want to consider is how the company is doing overall – is it opening new stores or closing stores down? By joining a franchise with strong growth, you give yourself a higher chance of success. Below are some of the fastest-growing franchises in recent years.
Orangetheory Fitness is a fitness company that offers trainer-led workout sessions that track participants’ progress with heart rate monitors. This is a fairly new company – only founded in 2010. However, it has experience explosive growth – 195% over the last 3 years, and 37% in just the last year.
|2018 Av. Sales/Franchise||$1M||Total Set-Up Costs||~$575,000 – $1.5M|
|2018 # of Franchises||1,000||Ongoing Fees||10% of sales1|
|2018 # of New Franchises||269||Required Liquid Assets||$150,00011|
|Franchise Fee||~$60,000||Required Net Worth||$500,00011|
|Enormous growth in number of franchises11||Very difficult to be accepted as a franchise owner – only 0.1% of applicants were accepted in 201813|
|Strong brand recognition, so less need to advertise||Monthly memberships are fairly expensive (~$130 – $290), so customers may not stay long-term12|
|Strong company support for workout routines13|
|International franchising opportunities13|
uBreakiFix repairs broken or damaged electronic devices, including smart phones, computers, tablets, and game consoles. Customers can complete a repair in store or by mail-in services14. The company has had 159% growth in number of franchises over the past 3 years and is now expanding into Canada and Puerto Rico14,15.
|2018 Av. Sales/Franchise||Estimated $600,00014,16||Total Set-Up Costs||$60,000 – $221,000|
|2018 # of Franchises||421||Ongoing Fees||7% of sales|
|2018 # of New Franchises||96||Required Liquid Assets||$130,000|
|Franchise Fee||$40,000||Required Net Worth||$200,000|
|Very strong growth in franchise numbers||Franchisers may need to develop technical knowledge|
|Device repair likely has a strong future due to ever-expanding consumer dependence on gadgets||Little training – 3 weeks in a corporate facility and 3 weeks on the job|
|Ongoing inventory and operational support||Very strong competition in the device repair market, and difficult to differentiate your store|
|Relatively low start-up costs|
CPR Cell Phone Repair
Cell Phone Repair, despite its name, repairs a full range of electronic devices in the U.S and Canada. Customers can choose walk-in, drop-off, or mail-in repair options. The franchise also offers buy/sell/trade services, and sells electronic accessories in its stores. This franchise is another which has seen major growth recently – 134% in the last 3 years and 38.5% in just the last year.
|2018 Av. Sales/Franchise||Estimated $200,000||Total Set-Up Costs||~$56,000 – $171,00018|
|2018 # of Franchises||511||Ongoing Fees||8.5% of sales|
|2018 # of New Franchises||142||Required Liquid Assets||$85,000|
|Franchise Fee||$25,000||Required Net Worth||$150,000|
|Very strong growth in franchise numbers||Franchisers may need to develop technical knowledge|
|Multiple revenue streams for franchisers||Very strong competition in the device repair market, and difficult to differentiate your store|
|Relatively low total start-up costs|
Franchises with the lowest buy-in/startup costs
Some people are interested in starting a franchise, but don’t have much capital. For them, franchises with a lower franchise fee and total setup cost might be a better option. For this list, we are considering not just franchises with low total start-up costs, but also those with proven success and growth potential.
Now, we know what you’re thinking: wait a minute, you already told us about how Chick-fil-A is one of the biggest money makers – so why is it in the ‘low startup cost’ section too? That’s right! One of the biggest money-making franchises is also one of the cheapest to open! It costs only $10,000 to open a Chick-fil-A. This is because Chick-fil-A pays for the land, building, and all required equipment.
Too good to be true? Yes – yes, it is.
Although it costs only $10,000 to open a Chick-fil-A, you are literally 25 times more likely to get into Harvard Business School than to be accepted as a Chick-fil-A operator (we’re serious – Harvard accepts 11% of applicants while Chick-fil-A accepts only 0.4% of applicants). But just in case you don’t get accepted at Chick-fil-A, going to Harvard is, you know, fine.
Jan-Pro Franchising Int’l. Inc.
Founded in 1991, Jan-Pro Franchising Int’l. Inc. offers commercial cleaning services to businesses. The total estimated cost to establish your own franchise is about $4,200 – $55,000. Even on the higher end of estimates, this is within the reach of most people who want to own their own franchise.
|2018 Av. Sales/Franchise||$57,000||Total Set-Up Costs||~$4,200 – $55,000|
|2018 # of Franchises||8,790||Ongoing Fees||~11% of sales|
|2018 # of New Franchises||304||Required Liquid Assets||$1,000|
|Franchise Fee||~$2,500 – $44,000||Required Net Worth||~$1,000 – $14,000|
|Low total start-up costs||Only moderate revenue per franchise|
|Strong growth||Only moderate training of 5 weeks|
|Can own multiple franchises||Low/moderate brand recognition|
|Company’s ‘Clean Greener’ initiative appeals to strong ‘green’ market trends, so may attract customers||Cleaning firms usually aren’t very differentiated to customers; may face strong price competition|
Franchises that give you passive income
One type of franchise that is often overlooked is “passive income” franchises. In other words, you don’t have to work on these businesses every day. These are easy franchise opportunities to get started.
Passive income franchises are great for anyone looking to keep their main job, or who want to be able to run multiple franchises business at the same time to boost their total earnings. However, passive income franchises tend to make less money than those which require more active involvement. In addition, you should be careful of passive income franchises that sound ‘too good to be true’ – most of the time they are.
IceBorn Water is a brand owned by Ice House America. The company works with franchisers to operate ice and water vending machines around the country. These machines operate 24/7 and require only a few hours of maintenance per week.
|2018 Av. Sales/Franchise||Estimated $25,500||Total Set-Up Costs||$113,000 – $245,000|
|2018 # of Franchises||173||Ongoing Fees||7% of sales|
|2018 # of New Franchises||-6||Required Liquid Assets||$25,000 – $75,000|
|Franchise Fee||$7,000||Required Net Worth||$50,000 – $200,000|
|Low maintenance requirements, allowing franchise owners to continue working other jobs||Need to have a high-traffic location to place the machine to be successful|
|Three machine sizes, allowing location flexibility||Ice is a niche market with potentially limited growth|
|SmartIce app remotely monitors machines||Low annual revenue, especially given start-up costs|
Next steps to owning your own franchise
As you can see, there are lots of options. The ones listed above are just a few of the hundreds of franchise companies you can choose. For anyone looking to learn more about franchising and specifically how it works, we recommend this guide from Franchising.com. The guide covers most of what you need to know about franchising. We particularly recommend that you read the ‘Pros and Cons’ chapter, since you definitely need to make sure that owning a franchise is a good fit for you before you buy into one.
After reading through this guide, you can then use a number of sites to find the right franchise for you. Some of the most comprehensive franchise search websites are Franchise.com, Franchising.com, and FranchiseDirect.com. After you have narrowed your choices down to your top few, you should then go visit actual franchise sites in your area. Site visits will let you answer some key questions that may not be mentioned in the franchise listing online, as well as give you a feel for the franchise itself.
Next, start reaching out to current franchise owners to hear about their experiences. Luckily, you can find the contact information for both current and some former franchise owners in Item 20 of the Franchise Disclosure Document (FDD), which all franchise companies must provide by law to prospective franchise owners (for more information on FDDs, see page 102 of the Franchise Rule Compliance Guide on the Federal Trade Commission’s website; you can also find a good collection of FDDs at FDDExchange.com). Ask owners as many questions as you can – what is it like working with the parent company? Do they provide enough support and training? Did the franchise end up providing the expected revenue and profit? Conversations with current owners can tell you incredibly valuable information. The website Franchoice.com has a fairly good guide for what questions you should ask franchise owners before buying a franchise yourself.
Finally – be excited! Owning your own franchise is a major step in being an entrepreneur!