When considering choosing a franchise, how do I look at ROI, and how does it relate to my profitability?

by | Oct 4, 2024 | Fitness | 0 comments

It would be wonderful to move through life only worrying about following passion and enjoying hobbies, but when considering a big career move in the real world, it’s important to be real – and that means thinking about and understanding how you’re going to make money.

When considering opening a franchise, you have to zoom out and consider the bigger picture, namely, how you can make sure your business will support you financially. In particular, you need to consider the ROI of your business – that is, your “return on investment,” as well as your profitability.

Your return on investment is exactly as it sounds; it’s the monetary return that comes back to you after investing money to start the business initially. Every franchise will have start-up costs, just like any business. Once your business gets moving, money will start to come back into the business. What you need to carefully consider is how quickly you’re going to be able to recoup that initial investment, and how long you can afford to wait. Will it take you 1 year? 3 years? 10 years?

This question, in part, will be answered by the profitability of your business. Your profitability is determined by how much money is left after the business pays all its expenses. If your business is doing one million dollars a year, that sounds fantastic, but if the business is spending $950,000 in expenses… that leaves you with only $50,000. Conversely, your business could be making $200k a year, but with only $70k expenses – $130,000 sounds much better than $50,000!

That ratio is called a “profit margin.” It’s a generally held notion that a profit margin of 20% is good, and it’s generally advised against accepting anything lower than that. However, some franchises can offer profit margins a lot higher than 20% – RiseUp Fitness is one of these. Do your research and ask questions of the franchises you’re considering about these numbers, because they will determine if your business will be viable enough to support your life.