What is a good ROI for a franchise?

Short answer

A healthy franchise returns 15–25% on invested capital annually, meaning a $350,000 all-in investment should generate $50,000–$90,000 in owner profit once mature. Anything under 10% is hard to justify against passive alternatives; above 30% usually means the owner is working full-time and their labour is uncosted.

Franchise ROI bands and what they mean

Annual ROI	Interpretation	Payback
Under 8%	Weak — below leveraged alternatives	12+ years
8–14%	Marginal; depends on owner salary	7–12 years
15–25%	Healthy target band	4–6 years
26–40%	Strong — verify owner labour is costed	2.5–4 years
Over 40%	Usually understated costs or one-off year	Under 2.5 years

How to read this table

With 5 reference points in the "franchise roi bands and what they mean" table, the fastest way to use this page is to find the closest row, take its interpretation, then stress-test it ±30% before you build a plan on it.

Context

Franchise ROI is only meaningful when the denominator includes everything: franchise fee, build-out, equipment, initial inventory, and three to six months of working capital. Owners who quote 40% returns have usually excluded the working capital and their own unpaid labour. The second distortion is ramp — most units take 12–24 months to reach steady state, so first-year ROI understates the business as badly as a mature-year figure overstates a struggling one. Judge a franchise on its year-three number with an arms-length manager salary deducted.

What moves this number

Royalty and ad-fund load

Royalties of 4–8% plus a 1–3% brand fund come off gross revenue before any operating cost, so they compress margin hardest in low-margin formats.

Build-out debt service

Loan repayment on the initial investment is the difference between a unit that looks profitable and an owner who takes home nothing. Amortisation term matters as much as rate.

Owner-operator versus absentee

An owner working the floor replaces a manager salary worth $45,000–$70,000 a year. Absentee units report materially lower take-home for the same revenue.

Unit count and shared overhead

The second and third units share management, purchasing and admin, so incremental profit per unit rises even when revenue per unit is flat.

Methodology

Owner profit after a market-rate manager salary divided by total invested capital including working capital, applied to FDD Item 7 investment ranges and Item 19 revenue disclosures.

Assumptions and caveats

Franchise Disclosure Document figures describe existing units, not a projection for a new one.
Ranges exclude the owner's own labour unless the row explicitly costs a manager salary.
This page was last reviewed on 2026-08-12. Ranges are updated as new data lands, so re-check before using them in a contract or a plan.
Use these numbers as a starting range, not a guarantee — your own historical data always beats a benchmark.

Frequently asked questions