If you have a successful business model that you are thinking of franchising, or you already have a small franchise business and want to grow but need to develop financial projections in order to raise money through a loan or investment, then the following post should help you work through the process.
I have also created an Excel template that you can download to create your own revenue projections for your franchise business model.
Step 1 – Franchise Inquiries
The first step is to estimate the number of franchise inquiries you will receive each month. You might need to do some math before this depending on where your inquiries come from. If they come from advertising, then you will need to estimate your advertising budget first and then estimate the number of inquiries that will generate. Or if you generate inquiries through your website, you might start with traffic and then estimate what percentage of traffic will turn into inquiries to open a franchise. Another possible source of leads could be FranNet. FranNet provides local advisors who help match individuals who want to get into franchising, with the right business opportunity for their particular situation. A FranNet advisor might be able to give you some idea of the number of leads they could provide on a regular basis.
Step 2 – Conversion Rate % from Inquiry to Sale
Next, you will need to estimate your conversion rate, in other words what percentage of people that inquire about open a franchise actually do? If you are just starting up and don’t have any data on this yet, you are going to have to make your best guess. To give you a frame of reference I would expect a very low conversion rate from someone who is just asking about your franchise, to the point where they write a check to purchase a franchise, maybe between 1 and 3%.
Step 3 – Growth % of Conversion Rate
Hopefully over time you will improve your conversion rate from lead, to franchise operator. If you are following along in the spreadsheet template I created, you will be able to add a % growth rate for the conversion rate we estimated in step 2.
Step 4 – Current # of Open Franchises
Next you will just need to list the number of franchises that you currently have open and operating if you have any at all.
Step 5 – Revenue Earned per Month per Franchise
Then you will need to estimate the revenue earned per month per franchise. Keep in mind that as you add new franchises they may not reach maximum revenue right away it will take time, so you may want to reduce your estimated revenue per month per franchise just slightly to compensate for new startup franchises. Also, note that you should estimate revenue based on the revenue from your initial business location.
Step 6 – % of Revenue for Franchise Commission
Here you will need to estimate the average % of a franchise’s revenue that you will take each year as a commission.
Step 7 – Franchise One Time Fee
Finally, most franchises charge an upfront fee to purchase the franchise. Estimate what your projected franchise fee will be.
That’s it. Now you should be able to complete your projected revenue for your franchise business.
If you want to complete a full set of financial projections, try our tool – ProjectionHub – where you will be able to input your new revenue projections and complete a full projected income statement, balance sheet, and cash flow projection. Good luck!