How Much Does a Franchisee Really Make?

"He uses statistics as a drunken man uses lamp-posts... for support rather than illumination." - Andrew Lang (1844-1912)

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.

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 an unemployment rate in range of 10% to 20% range, this figure just doesn't pass the smell test. 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 difficult economic times? Or any economic times?

FranchiseFacts explores this issue in detail as part of its National Franchisee Survey.

Our 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 operational expenses. These businesses, and their owners, now are saddled with financial obligations that cannot be paid out of current revenues. Consolidations and closures are inevitable.