How Do Franchises Work?

Drive down nearly any commercial street in the United States and you’ll pass a variety of franchises: McDonald’s, Century 21, Kumon, Planet Fitness, Subway.

Businesses like these are as American as apple pie—and lately, women are taking a slice. According to career site Zippia, 31% of all franchise owners are women—and the number of women becoming franchisees has grown steadily over the past few years.

But how exactly does this business model work, and why are so many entrepreneurial women flocking to it?

What Is a Franchise?

When you purchase the rights to a franchise, you are simultaneously becoming a small business owner and part of a much larger company with its own brand recognition and, typically, a pre-made business plan. It can be the best of both worlds, since you take on fewer risks than you would with a brand new, unknown business.

But to become a franchisee, you generally have to pay some sort of franchise fee to the brand. In exchange for this fee—which can range from $10,000 to several hundred thousand dollars—you will receive the right to use the brand name for a certain number of years, as well as the format or system that was originally designed by the franchisor. In some cases, the franchisor will also support you in finding a location and help with the initial training.

In addition to the upfront fee, you can also expect to pay ongoing royalties—which is usually a percentage of your monthly gross income—and advertising fees, which will go into a fund that helps promote the brand at large.

What Is the Franchise Owner Role?

“A lot of people are confused about franchises,” says Carole Felsenstein,who owned a massage franchise in New Jersey for eight years. “They think owning a McDonald’s means you’re in the food business. But when you own a McDonald’s, you don’t determine the menu or even where to buy the food. Your job is to hire and train staff and manage the day-to-day.”

When Felsenstein decided she wanted more flexibility than her corporate job could provide, she connected with a franchise broker to explore her options. “Franchise brokers typically charge the franchisor, not the franchisee—so it was free for me,” she says. “I filled out a questionnaire and then the broker pitched me several different franchises.” The massage franchise she bought turned out to be a great decision.

“I didn’t want a business that was totally dependent on my own skills and knowledge, so this fit the bill,” she explains.

In other words, becoming a franchisee doesn’t have to correspond with your interests or entrepreneurial passions—it’s more of an investment in the business model.

How Much Can You Make as a Franchisee?

One major downside to pursuing a franchise is that it can take a while before you see any major financial gains—and it requires start-up capital. 

“I was into the first half of my second year before I was cashflow positive,” Felsenstein says.

However, luck and timing can also play a role. For example, Felsenstein opened her store at the tail end of 2007, just as the recession took hold. “We were a subscription-based business,” she says, “and there were financial advisors like Suze Orman going on Oprah saying, ‘cancel all your memberships!’ It was a scary time.”

But, in general, Zippia reports that the average salary for a franchisee is $49,588—but first-year franchisee salaries average $39,000.

Owning a franchise can also potentially net you a profit when you’re ready to get out of the business. Felsenstein fielded three different offers for her franchise six months before her self-imposed retirement date—so she took the money and ran.

Should You Become a Franchisee?

Purchasing a franchise gives budding entrepreneurs a ready-made business model. “The benefit is a recipe that’s been tested and found to work,” Felsenstein says. And franchises are projected to continue to perform well and to end the year strong, according to The International Franchise Association, so they can be considered a stronger choice over starting a unique small business.

But buying a franchise doesn’t guarantee anything. “If you buy into the wrong concept, you could lose your money,” Felsenstein adds.

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Emily Guy Birken is a former educator, lifelong money nerd and Plutus Award–winning freelance writer. She lives in Milwaukee with her spouse, two sons, a dog and a cat.

Illustration: Jessie Lin