How To Calculate ROI Of A Franchise Business

How to calculate ROI of a franchise business
How to calculate ROI of a franchise business

Table of Contents

While investing in a franchise you would expect good returns. And there would be an urge to know every detail of how well your investment is performing. This is where calculating ROI of a franchise comes into the picture. It lets you see whether a certain investment is growing or not. 

If you have just heard about ROI (Return on Investment) but don’t understand the concept properly, we are here to help.

In this article, we have shared:

  • What is ROI
  • How to calculate ROI for a franchise business

By the end of this article, you will have a clear understanding of what is ROI and how to calculate ROI of a franchise business. It will help you in multiple ways while starting and running a franchise business. So, without any further ado, let’s start: 

What Is ROI

Understand what does ROI mean before calculating ROI of a franchise business
What does ROI mean

Return on investment, commonly known as ROI, is a popular profitability metric. It is used by investors to evaluate how an investment has performed. The investments can be into real estate, stocks or a business.

ROI can be calculated using different formulas and presented as a percentage. It also helps in comparing and ranking different investments in an individual or different projects. However, there are some limitations and challenges of ROI as well.

Investors choose a company or a project with a good return on investment. Because high ROI implies that a company or a project is successful in using the investment money and generating high returns. In case you have shortlisted a few profitable franchisees, you can compare their ROIs and choose one with a higher ROI. There is a simple rule to interpret ROI in any business, the higher the ROI, the better it is performing.

Note: ROI should not be the sole criterion to choose a franchise business over other. This is just one of the many parameters you should look at while joining a franchise.

For instance, if you are satisfied with other aspects of a business like its brand value, quality of services, etc. but it has a negative ROI, it may not be a good option for short-term investment.

What is negative ROI

positive and negative ROI
Positive and negative ROI

In layman’s terms, ROI is the sum you are earning on an investment. So, negative ROI implies the investment has failed or the project has lost money. It happens when a business incurs financial loss during a specific period of time. The term “negative return” can either be a net loss on all businesses or investments or a loss on an individual investment.

We have a franchise business opportunity with guaranteed positive ROI.

For example, if you have invested 10,000 in a business and a year later it generates 5,000. In this case, your investment had a negative return.

In order to take a better decision you should know how to calculate ROI of a franchise business, so let’s see how it is done.

How To Calculate ROI For A Franchise Business

How to calculate ROI of a franchise business
How to calculate ROI of a business

There are multiple formulas/methods for calculating ROI of a franchise business. Here, we will use:

(Benefits – Cost) / Initial Investment × 100

To calculate ROI with utmost accuracy, you must know the total costs and total returns in a franchise business. Hence, make sure you have a complete list of everything in which money has been invested to run a business as well as all the returns. All of this information can be found in business spreadsheets, accounting journals or accounting software. Meanwhile, let’s see the common things you will need to check:

  • Investment to start the business: It is basically capital expenditure made on fixed assets such as land, building, equipment, etc.
  • Returns from the business: Revenue acquired during a specific period of time.
  • Expenses to run the business: All the expenses or costs incurred to run the business may include money spent on purchasing inventory (raw materials), hiring staff, training staff, paying salaries, paying bills (electricity, water, Wi-Fi, etc., business software, etc.

Now, calculate ROI of a franchise business using the above-mentioned formula. You can understand this with the help of an example: 

Suppose you invested ₹10,000 in machinery, ₹4,000 in branding ₹10,000 in the construction of a store. Your total initial investment is ₹10,000 + ₹4000+ ₹10,000 = ₹24,000.

The expenses or costs that you have incurred within a year of running the business include ₹10,000 for salaries, ₹10,000 for rent, ₹10,000 for marketing and promotion and ₹3,000 for taxes. The total expenses or costs sum up to ₹33,000. At last, the revenue you generated in the 1st year is ₹52,000.

In this case, you can calculate ROI as follows: 

(Benefits – Cost)/ Initial Investment × 100

 (52,000-33,000)/24,000 × 100 = 79.1% 

In this example, the ROI is 79.1%

To give you a better understanding of how to calculate ROI of a franchise business, we are sharing how we do it for Tumbledry.

ROI Of A Tumbledry Franchise Business

how to calculate ROI of a Tumbledry franchise
How to calculate ROI of a Tumbledry franchise

We list all costs incurred while setting up the business or initial investment. It includes the shop’s security deposit, cost of machines, cost of store construction & interiors, cost of electricity load, branding, logistics and franchise fee.

Then we list all the costs incurred while setting up the business or initial investment. It includes the shop’s security deposit, cost of machines, cost of store construction & interiors, cost of electricity load, branding, logistics and franchise fee.

At last, we calculate returns/ benefits acquired in the business during 1 year considered at optimal utilization of the capacity of the store.

This is how the data looks:

Initial Investment
2400000
Annual Revenue/ Benefits
5280000
Annual Expenses/ Cost
3360000
Annual Profit
1920000

Note: The numbers are for representational purpose, actual data may vary.

In case you want to calculate the exact ROI of the Tumbledry franchise business, we can help.

(Benefits – Cost) / Initial Investment × 100

(52,80,000 – 33,60,000) / 24,00,000 × 100 = 80%

The ROI for 1 year of a Tumbledry franchise is 80% which is a positive and high ROI. It keeps changing depending on the changes in cost and benefits incurred in a year.

You can also calculate ROI of a franchise using this method and see whether it can offer a decent return on investment or not.

For more such information, you can keep visiting Tumbledry. We post a lot of franchise and business-related things. Also, if you are interested in the laundry and dry cleaning franchise you can check out details about the Tumbledry franchise model.

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  • Inspection

    Shoe material analyzed to decide the cleaning methodology.

  • Dismantling

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  • Deep Cleaning & Stain Removal

    Any spots or stains are removed with German organic chemicals.

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    All the bacteria, viruses and bad odor is eliminated.

  • Drying

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Carpet Cleaning

Carpet Dry Cleaning Service By Tumbledry

An intense, deep-cleaning of carpets to restore their original glory

We specialize in dry cleaning of Persian rugs, silk & Turkish carpets, and all other premium, imported rugs of nylon, wool, cotton, polyester and olefin.

  • 100% carpet fabric color & luster preserved
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  • Complimentary border pasting

WOOLENS DRY CLEANING​

Tumbledry Dry Cleaning for Woolen Garments

Our Woolmark approved Lagoon system is the world’s most advanced and eco-friendly technology for dry cleaning woolen garments – sweaters, coats, furs, shawls, pashmina, and jackets.

Your woolen garments will be delivered stain free, and will retain their original texture, smoothness, fluffiness, shape & size. Our advanced systems and processes ensure zero shrinkage.

For expensive and delicate woolens like furs & pashmina, we use special eco-friendly chemicals from Germany which are of neutral ph, and form a protective covering around wool fiber to maintain its shine & lustre after dry cleaning.

CURTAIN CLEANING​

Curtain Dry Cleaning Service At Tumbledry

Premium curtain dry cleaning service service with facility to remove the curtains from rods and install them back after dry cleaning.

  • Processing as per curtain fabric type (silk, velvet, blackout etc)
  • Zero shrinkage guaranteed with our Italian technology
  • 99% stain removal promise
  • 100% shine & lustre maintained with our German organic chemicals
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Leather Dry Cleaning

We specialize in dry cleaning of leather shoes, bags and jackets

Professional leather dry cleaning for jackets, bags, purses, clutches, wallets, belts, shoes, boots and stilettos.

Protect your leather items from dirt, dust, oil stains, perspiration, dehydration, mold & mildew.

Our expert leather care technicians inspect each item with utmost care to assess the color, shade, and type of leather, and accordingly decide the most appropriate treatment.

Complimentary conditioning and polishing to ensure smooth & shining finish

Shoes/Bag Cleaning & Restoration

Shoe & Bag Dry Cleaning & Restoration By Tumbledry

Experts in dry cleaning of Sports, Canvass, Leather, Suede, Nubuck Shoes, Sneakers, Boots, Sandals and Canvass, Jute, Leather & Suede Bags

    • Gentle chemicals and conditioners to maintain the color & fabric.
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Following Restoration Services are also available:

    • Sole pasting
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Haute CouturE Dry CleaniNG

Haute Couture Dry Cleaning At Tumbledry

Want to restore the glory of your haute couture? Look no further than Tumbledry!

We have a separate team of processing experts who handle your most expensive silk, bridal & designer wear for dry cleaning. Each Haute Couture article is given a customized treatment in our state of the art dry cleaning facility.

Our team has more than a decade experience of dry cleaning most delicate and expensive silk sarees, including: Banarasi silk, Kanjivaram/Kanchipuram silk, Baluchari silk, Bomkai silk, Tussar silk, Chanderi silk, Dharmavaram silk, Banglori silk, Mysore silk, and Patola silk.

Be it Manish Malhotra, Tarun Tahiliani, Masaba Gupta, or Sabyasachi Mukherjee – we have got tons of experience dry cleaning fashion articles from most popular designer houses. We understand the nuances of the make and design, as well as the fabric structure used by these designer houses – and this enables us to give the perfect treatment to these haute couture articles