Industry Breakdown

So why should I be interested in franchising anyway?

The International Franchise Association (IFA) estimated that product and trade name franchising accounted for $554 billion in sales in 1992. This represents roughly 28% of all retail sales.

Business format franchising produced total sales of $249 billion in 1992, roughly 13% of all retail sales. In layman's language, this means that for every $1.00 spent at the retail level, more than $.13 went to franchised establishments. There is no question that franchising has had a profound impact on the way business is conducted in the U.S. Most analysts anticipate that the overall numbers and market share of retail business will continue to grow well into the forseeable future and at a faster rate than the economy in general.

Are you ready for some statistics?

According to the IFA's 1997 "Profile of Franchising (Statistical Profile of the 1997 Uniform Franchise Offering Circular Data)":

18% of the industry was concentrated in fast-food and 11% in retail, while only 1% of the concentration was in travel or printing.

In terms of system size, about half of the systems analyzed had more than 50 units, with 27% (the largest concentration) having between 11 and 50 franchised units and 75% having 10 or fewer company-owned units.

60% of the companies had been in business 12 or more years, but only 44% had been franchising for more than 8 years.

Only 4% of the franchisors had an initial franchise fee of over $50,000; fast-food, which was the largest category, had an average fee of $19,999.

The average total investment for most companies was under $250,000, and most had renewable franchise contracts.

Although royalties varied greatly from franchise to franchise, most based it on sales/revenue and ranged from 3.6% monthly.

48% of franchisors had an advertising fee based on percentage, usually ranging between .01-2%. Franchisor-sponsored financing was offered by 37% of the companies.

Picking the diamond in the rough...

Selecting a franchise can involve a variety of factors, from your personal interest in the product/service being sold to whether or not the business concept is in a growing industry with a lot of demand.

There are a variety of ways for you to check out all the franchises available to you. You can browse through recommended reading such as the Minority Franchise Guide, which contains over 1,000 franchise listings, broken into 54 distinct business categories. This represents a substantial number of options from which to choose. After you select a few franchises you are interested in, request information from them. The cost of mailing (or calling) requests is insignificant compared to the bigger picture.

You can also attend franchise shows and expos, seminars and workshops for an introduction to various franchises. In addition, there are numerous publications and associations that are specifically geared toward providing you with franchising information. Finally, you can always talk to existing franchisees about their experiences.

Please visit our Resource Center for information on each of the above.

Our website has also surveyed the 1,000 franchisors in our database to create industry comparison tables (e.g. fast food, specialty retail, etc.) The tables provide you with information on the relative size of each industry, fees and investment levels required, average franchise and royalty fees, etc. Please take a moment to view these tables for an overall picture of an industry you might be interest in.

Next: Financial Analysis