How to Make $1M with a Franchise
Jan 23, 2024
Everyone wants to become a millionaire and investing in the franchise model can help people achieve that goal.
As an expert on small business management and franchising, I can say certain business principles apply to small businesses, in general, to increase their profitability. But, when it comes to franchising, you must go into the multi-unit enterprise mode.
I always say that operating one unit is the same as having a job, but being a multi-unit franchisee means you have an enterprise. If you just have a job, you won’t be able to become a millionaire. On the other hand, if you invest in a business and scale into multiple units, your possibilities increase.
But, what does it take to accomplish this goal through franchising?
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How to make a $1 million business?
There’s a basic business principle that is pretty simple:
- All the money that comes into the business is sales, which is your revenue.
- The money that goes out is expenses or costs.
- The money that’s left over is your profit.
However, the actual way of having a millionaire business depends on the business itself and its model. For example, if you want to become a millionaire on sales and revenue, you need to have two franchise units that make $500,000 each in revenue or sales to have a $1 million revenue business.
- But beware: revenue does not equal profit.
The average business, if properly managed, gets about 10% of sales in profit. So if you have a business that makes $500,000 a year in revenue and you manage it well, you should take home $50,000 in profit.
This rule changes if you have any debt, meaning you have a loan and you're paying principal or interest rates. Those types of franchises normally have an average of 5% of net profit, in general numbers. They can even lose money if they are not managed properly or if the brand is not good enough.
Don’t miss: How much profit do franchises really make?
Become a millionaire: two perspectives
There are also two ways to look at the projection: conservative and aggressive. Let’s look at the possibilities:
1. Conservative mode, having a loan. If your unit makes $500,000 a year, you’ll have $25,000 in profit by applying the 5% rule. That means that for you to become a millionaire, or to make $1 million in a year, you need 40 of those units.
Unit $500K x 5% = $25,000 x 40 units = $1M
If instead of making $500,000 in revenue or sales per year, the unit sales are $1 million a year, that means you take home $50,000 of net profit per unit, so you now need 20 units. That's half as many because those units are making twice as much revenue!
Unit $1M X 5% = $50,000 x 20 units = $1M
That million will multiply year after year, but only if you grow into 20 units.
- That’s why if you want to have true financial freedom, instead of a secure job, you must become a multi-unit franchisee.
Keep learning: 6 Key financial insights for multi-unit franchisees
2. Aggressive mode, no debt. If you don’t have a loan, instead of a 5% net profit you’ll have a 10% net profit. So if you make an average of $500,000 a year in sales per unit, you only need 20 units to get to $1 million.
Unit $500k x 10% = $50,000 x 20 units = $1M
If you have a franchise brand that makes $1 million in sales, you only need 10 units to make $1 million in profit. But, you’ll need a whole lot of initial upfront investment to get there.
Unit $1M X 10% = $100,000 x 10 units = $1M
There’s more than just math
Seeing this as just math it’s easy. But figuring out what it takes to get to that profitability is where things get complicated.
It’s not just about buying the right brand because whatever brand you have, whether a startup, a mature, or a legacy brand, how you manage the business is going to make the difference and determine if you can achieve that average profitability.
You also have to be the right leader, who is properly trained and has the business understanding to be able to produce the average results.
Other things that you must cover to become a multi-unit millionaire franchisee are:
- You understand how the numbers work.
- You know how to access capital for expansion.
- You can manage and lead a team.
- You have systems, processes, and procedures to help your team produce consistent results.
- You have skilled and properly trained leaders that do a great job.
The good news is that everything I shared is learnable. But the franchisor won’t give you that information because what they're giving you is a proven brand, a product, service, image, regional and national marketing, and all the brand procedures and how to duplicate that.
The managerial and leadership things are on you, but these are learnable. If you have access to this information, tools, and resources, and learn how to implement them in your business, you'll be able to succeed and achieve not only those average results but maybe even more.
That’s why as a business owner you not only need to know how to get the cash but also how to operate the business properly.
Becoming a millionaire with a franchise requires more than just a good brand. It implies properly growing into a multi-unit organization, which, by the way, is possible for anyone who wants to, as long as they get the right knowledge.
There are many ways you can access that: through mentors, fellow franchise owners who can share ideas and best practices, or online and educational programs, like the one we offer at the American Franchise Academy.
Our 100% focus is helping franchisees implement those processes, systems, procedures, and policies in their organization so their teams can operate with a high level of excellence, and thus, achieve profitability.
We offer three programs:
- Command Program, for multi-unit franchisees and franchisees that are growing.
- Lead Program, for district managers who oversee multiple units in a district.
- Manage Program, where we teach unit managers how to be great leaders, produce profits, and increase sales year over year.
Reflections:
- What other things would you consider necessary to become a millionaire?
- How much profit do you have left every month/year?
- Do you have the business acumen and skills to turn the revenue into profit?
- In what areas would you need help with to achieve that millionaire goal?
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