Understanding Return on Investment in Franchise Business!!!

An investment is always made for the purpose of earning returns. Many investments we make on a day-to-day basis, such as real estate, gold, bonds or stocks have returns. Usually returns on such investments have a considerably definite way of calculation and most of them range from 5%-10% per annum.

The answer is a little complicated; there is a lot more to be understood about the investments on franchise compared to investments mentioned above. The above investments are normally considered passive in nature wherein you invest money for returns at a nominal rate and do not spend your man hours or skilled time in earning. Say, you buy a share for $100 and earn dividend for $10 a year and then the ROI is simply 10%. Passive investments also have the advantage of being ‘higher the risk, higher the return’ ability.

However in case of franchise, apart from the money invested you also invest man hours and skills related to management and technical in nature. You might also give up your full time job for the sole purpose of managing the franchise, as almost all franchises will need the owner to invest some amount of time in the day to day business. And hence an investment in franchise is not a passive one and calculating ROI includes investment of skills and man hours. Hence ROI would have to be much higher than what a passive investment could earn for you.

Further, franchise is also similar to any new business and losses are to be expected in the initial months without any return or even losses before it stabilizes and starts to earn profits. To account for the same is highly impossible as even a same franchise might perform differently in different locations based on ‘n’ number of factors.

IIHT Technologies - Franchise, takes about a year and a half or more time to break even on an average. However higher involvement and commitment from the franchisee has resulted in higher efficiency, that has increased sales and hence reduced the time to break even in many cases. There has been record where franchises have been able to earn profits within a year and at much higher rate.

Features like enterprise training, allows the franchisee to earn over and above what is accounted for individual training in IT IMS. Enterprise training is considered as additional revenue for the franchise and further, complete support is provided by IIHT Technologies for the same. Even though ROI on an average is set at 25%, any franchise has potential to gain much more through quality service delivery. IIHT Technologies in addition provides continuous training to the entrepreneur and nurture the franchise for better growth.

Usually the franchisor would have studied their franchises over years and based on their performance chalked out an average ROI that one can expect from investing in a franchise, however most franchisees can earn much more when their efficiency in sales and services are increased.

Hence for an individual investing in a franchise, it is essential to consider the returns to be higher than a passive investment plus their yearly income should be accounted for.

ROI should range from 25% to 50%. That is, if the ROI is 25% it has to have the ability to be scaled up to 50% or above after the initial period of stabilization. Franchisors could also provide you an average term needed to break even.

It is crucial to carefully evaluate a franchise for its past performance and at the same time analyze your potential in terms of finance and skills for arriving at the most reasonable ROI for you.

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Tel: 91 80 6160 4545 e-mail: [email protected]

web: www.iihttechnologies.com/