What Types of Franchises Are Most Profitable?

The types of franchises that are the most profitable include legacy fast food chains with established followings, as well as low-cost, home-based concepts without the need for a storefront.

A reliable way to determine a franchise’s future profitability is by first analyzing the Item 19 of the franchise’s franchise disclosure document (FDD), which outlines the business’s financial performance. The FDD also provides an approximation of the initial investment (Item 7). The upfront costs obviously play a major role in the potential for profitability and should be weighed carefully against a prospect’s available capital and potential financing.

Most franchise concepts require initial and continuing fees paid to the franchisor, which can be found in Items 5 and 6 of the FDD. These fees will also have an impact on the potential ROI.

Based on those qualifications, Nerdwallet outlines the top five most profitable franchise concepts as follows:

• Startup costs: $1,300,000-$2,300,000

• Startup costs: $200,000-$1,700,000

• Startup costs: $138,000-$567,000

• Startup costs: $1,795-$20,300

• Startup costs: $48,950-$124,950

Several variables combine to determine a franchise’s profitability, and many depend on the individual prospective owner/operator. To understand these factors, enlist the help of a knowledgeable franchise consultant, accountant or another financial advisor. These experts will evaluate the prospect’s specific situation and create a reasonable projection that details the return on investment the owner can expect to achieve.