UNDERSTANDING

RETURN ON INVESTMENT (ROI)

IN FRANCHISE BUSINESS!
An investment is always made for the purpose of earning returns. Many
investments we make on a day-to-day basis, such as real estate, gold, bonds
or stocks have returns. Usually returns on such investments have a
considerably de inite way of calculation and most of them range from 5%-
10% per annum.

Is there a thumb rule that allows

us to calculate the return on the
investment made on a franchise?
The answer is a little complicated; there is a lot more to be understood about
the investments on franchise compared to investments mentioned above.
The above investments are normally considered passive in nature wherein
you invest money for returns at a nominal rate and do not spend your man
hours or skilled time in earning. Say, you buy a share for $100 and earn
dividend for $10 a year and then the ROI is simply 10%. Passive investments
also have the advantage of being ‘higher the risk, higher the return’ ability.

Definition of 'Return on Investment - ROI’

“A performance measure used to

evaluate the efficiency of an
investment or to compare the
efficiency of a number of
different investments.”
ROI = (Net Profit / Cost of Investment) x 100
 However in case of franchise, apart from the money invested you
also invest man hours and skills related to management and
technical in nature. You might also give up your full time job for the
sole purpose of managing the franchise, as almost all franchises
will need the owner to invest some amount of time in the day to
day business. And hence an investment in franchise is not a passive
one and calculating ROI includes investment of skills and man
hours. Hence ROI would have to be much higher than what a
passive investment could earn for you.

Further, franchise is also similar to any new business and losses

are to be expected in the initial months without any return or even

ROI
losses before it stabilizes and starts to earn pro its. To account for
the same is highly impossible as even a same franchise might
perform differently in different locations based on ‘n’ number of
factors.

$
Explained!!
$ $
IIHT Technologies - Franchise, takes about a year and a half or
more time to break even on an average. However higher

$ involvement and commitment from the franchisee has resulted in

higher ef iciency, that has increased sales and hence reduced the $
$ $
time to break even in many cases. There has been record where
franchises have been able to earn pro its within a year and at much
higher rate.

$ Features like enterprise training, allows the franchisee to earn $

$ over and above what is accounted for individual training in IT IMS.
Enterprise training is considered as additional revenue for the
franchise and further, complete support is provided by IIHT
$
$ Technologies for the same. Even though ROI on an average is set at
25%, any franchise has potential to gain much more through
$
$ quality service delivery. IIHT Technologies in addition provides
continuous training to the entrepreneur and nurture the franchise $
$ for better growth.
$
Usually the franchisor would have studied their franchises over years and based on their
performance chalked out an average ROI that one can expect from investing in a franchise,
however most franchisees can earn much more when their ef iciency in sales and services
are increased.

Hence for an individual investing in a franchise, it is essential to consider the returns to be

higher than a passive investment plus their yearly income should be accounted for. ROI
should range from 25% to 50%. That is, if the ROI is 25% it has to have the ability to be
scaled up to 50% or above after the initial period of stabilization. Franchisors could also
provide you an average term needed to break even.

It is crucial to carefully evaluate a franchise for its past performance and at the same time
analyze your potential in terms of inance and skills for arriving at the most reasonable
ROI for you.
TECHNOLOGIES
TECHNOLOGIES
Corporate Headquarters
#15,Sri Lakshmi Complex, 4th Floor, St. Marks Road, Bangalore - 560 001. India
Tel: 91 80 6160 4545 e-mail: franchise@iihttechnologies.com
web: www.iihttechnologies.com