If you drive down any major American freeway for long enough, you’re guaranteed to see dozens of billboards featuring some iconic franchises. Whether it be McDonald’s golden Arches or famous purple and orange DD for Dunkin Donuts franchises and the symbols representing them, they have become integral to American culture. Not only do these franchises hold a special place in the hearts of consumers, but they also repeatedly find their way to our wallets.
The great thing about franchises is that anyone (with the right money, resources, and experience) can own a piece of the metaphorical capitalist pie. Plus, there are hundreds to choose from so that entrepreneurs can choose the franchise that best fits their skill set as well as budget.
In this article, we are going to go over some of the most profitable and well-known franchises that you can own, as well as the basics of what it takes to operate one. If you are searching for your next big business move and are also the type of person who finds themself in the drive-in time and time again, opening a franchise might just be your ticket to success.
What Is A Franchise?
Before we jump into discussing some of our favorite franchises, let’s review what a franchise really is. According to the International Franchise Association, a franchise, or franchising is
“a method of distributing products or services involving a franchisor, who establishes the brand’s trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor‘s name and system.”
Essentially, what this means is that the franchisee pays the franchisor a franchise fee to receive the rights to use the franchisor‘s products, branding, and knowledge. However, the franchisee must follow the specific guidelines set by the franchisor on how to operate their franchise.
The earliest franchises date back to the mid-eighteen hundreds; however, the proven business model of franchising as we know it today began in the 1950s with a little hamburger stand called McDonald’s. Businessman Ray Crock translated the assembly line concept to serve the fast-food industry, believing that customers around the world should know what to expect when eating at any Mcdonald’s.
Since then, franchises have become a trademark of the American business landscape, with over 745,000 franchise locations across the US.
Things To Consider When Opening A Franchise
While a franchise opportunity presents entrepreneurs with a tried and tested product and brand, they are not a guaranteed recipe for success. When looking to increase your chances of making a profit, there are certain things to consider.
Startup Costs and Royalty Fees
All franchises require a franchise, although this amount can vary greatly depending on the particular franchise. More established and well-known franchises tend to be more expensive due to the brand recognition and customer base.
As a rule of thumb, it’s recommended that investors should have at least $10,000 in the bank before they purchase a franchise.
Another thing to consider is the profitability of each particular franchise. Opening a franchise is a big commitment of both money and time. Opening a Mcdonald’s franchise, for instance, requires a minimum time commitment of 20 years, so it’s important to choose a franchise that will be worth your while.
Analyzing the franchise’s financial statements, examining the success of other franchise locations over the last several years, brand strength, and taking into account the number of franchises that have opened in recent years can all help you determine whether the franchise is profitable.
Each franchise offers unique support systems that help owners start and manage their locations and train their staff.
Larger franchises like 7/11 have extensive support systems and will even fly franchise owners out to a support center for training. While smaller franchises might cost less to purchase upfront, their support systems are often less comprehensive.
Having the resources to train your staff and run your location properly is essential for a successful business.
5 Profitable Franchises
Again, no business venture is a guaranteed success; however, opening a franchise gives you a unique opportunity to access proven product popularity or service with an already recognized brand.
Here is our list of the five top franchises to own.
Particularly if you are from the northeast, chances are you’ve had one (or a hundred) cups of Dunkin’ coffee. Dunkin’, formerly known as Dunkin’ Donuts, is one of the most successful franchises in the US and was ranked #1 in customer loyalty by Brand Keys’ Customer Loyalty Engagement Index. Not only does Dunkin’ have great products and branding, but it also has a robust support system for its franchisees.
Dunkin’ offers franchisors a franchising executive and construction, training, field marketing, and operations managers. All of this comes at a cost, however. Dunkin’ is one of the more expensive franchises to own, requiring an initial investment of anywhere between $100K to $1.5 million. However, this number will vary based on your location, as well as the nature of your store.
Opening McDonald’s fast food restaurants come with incomparable worldwide brand recognition, customer loyalty, and proven franchise success. Furthermore, McDonald’s nearly guarantees a profit, provides ongoing support to their franchisees, and also is committed to increasing franchise ownership for women and minorities.
Furthermore, Mcdonald’s doesn’t require any specific skill set, much like most other franchises; however, managerial experience is preferred. Much like Dunkin’ McDonald’s, franchises are on the expensive side. The Mcdonald’s franchise fee is $45,000, with an average total investment being between one and two million dollars.
While Mcdonald’s does allow financing from third-party lenders, your down payment must come from a non-borrowed source. While the cost is high, you’ll receive continued training, advertising, menu innovations, and technology upgrades.
On average, McDonald’s franchise owners make roughly $150,000 per year. Besides, who wouldn’t want to own their pair of golden arches and belong to one of the best-known fast food franchises globally?
While most people immediately jump to fast food when they think of franchises, there are plenty of non-food terrific franchises for entrepreneurs to invest in. One of these is shipping giant UPS.
UPS ranked #3 on Entrepreneur Magazine’s Franchise 500 list of 2021. Like the franchise above, UPS offers tremendous brand recognition, financial stability, and a world-class training and support system.
Also, UPS stores require a significantly smaller initial investment than fast-food chains and offer investors funding through a partnership with Guidant Financial. Total investment costs will sit somewhere between 140,000 and 500,000 dollars with an initial franchise fee of only $9,950 to $29,950.
7-eleven is technically a retail store. However, most of us have stopped for a Slurpee or taquito at least one. In the world of convenience stores, 7/11 is ranked #1 and is extremely well known across the country. Despite 7/11 being nearly 100 years old, it remains one of the fastest-growing franchises, adding over 4,500 locations in just the past few years.
Furthermore, 7/11 stores are turnkey, and franchise owners can get started in under six months, including application, training, and testing. The overall investment cost of a 7/11 is between $37,550 to $1,149,900, with financing available.
Next on our list is gymnasium giant Planet Fitness. Planet Fitness’s famous “judgment-free zone” as well as its affordable membership cost of just $10 per month makes it appealing to those who wouldn’t normally sign up for a gym membership otherwise. Planet Fitness memberships have doubled in just the past five years growing from 7 million to over 14 million.
While operating a gym may seem like a daunting task, Planet Fitness takes a simple approach. Take it from the CEO Chris Rondeau himself, who is quoted saying, “We don’t have pools, we don’t have classes, we don’t have instructors to pay, we run our stores with 15 people”.
The initial franchise cost is between roughly 1 million and 4 million dollars, though franchisees see serious profits, the average being over 500,000 dollars.
Final Thoughts On Franchises
For small business owners who have always found satisfaction in being entrepreneurs, owning a franchise can be a great option. The best franchise opportunities create the win-win situation of inheriting all of the benefits of an established brand while also being your own boss. In addition to having cash on hand, potential franchisees will need to approach their franchise with a solid business plan.
Furthermore, talking to existing franchisees can be invaluable for those who are considering opening their own franchises. Existing franchisees can share their personal experiences with the franchisor and their outlook on the franchise’s future success. Additionally, hiring an accountant or lawyer to assist you with analyzing the franchise agreement can help you make the right choice.
In any situation, it’s important not to rush into any major business decision that doesn’t suit your particular needs. With hundreds of options, there are plenty of opportunities for you to run a business that is both financially successful and fulfilling.