Return on investment (ROI)
What it means
In its simplest form, ROI is annual net profit divided by total investment, shown as a percentage. If a franchise costs $200,000 all-in to establish and returns $50,000 of owner profit a year, the ROI is 25%, implying a payback period of roughly four years. ROI lets you compare very different opportunities — a $40,000 mobile service and a $600,000 restaurant — on the same footing.
The number is only as good as its inputs. 'Total investment' should be the true all-in establishment cost including working capital, not just the franchise fee. 'Net profit' should be a genuine owner's return after all costs — including a market wage for the owner's own labour if they work in the business — otherwise the ROI flatters an owner-operator who is really buying themselves a job.
Franchisors in Australia are not required to give earnings figures, and many do not. Where a franchisor does make an earnings claim, the Franchising Code requires it to be reasonable and supportable. ROI you calculate yourself from validated franchisee figures and conservative assumptions is usually more reliable than a headline number in a brochure.
In practice
Build ROI from the bottom up: total investment (fees plus fit-out plus working capital), then a realistic profit-and-loss that separates the owner's wage from business profit. Speak to current franchisees to sanity-check revenue and margins, and run a conservative, a middle and an optimistic case.
Compare ROI alongside risk and effort, not in isolation. A high ROI that depends on the owner working 70 hours a week, or on best-case sales, is not the same as a steadier return with realistic assumptions. Payback period and unit economics are useful companions to the ROI percentage.
A real example
A prospective owner is weighing two systems. A home-based lawn-care franchise costs $45,000 all-in and, after paying themselves a wage, returns about $18,000 profit — a 40% ROI but a hands-on job. A café costs $320,000 all-in and returns about $60,000 owner profit — roughly 19% ROI. They use both ROI figures, plus the workload and risk, to decide.
Return on investment (ROI) — FAQs
How do you calculate franchise ROI?
Divide the annual owner's net profit by the total all-in investment and express it as a percentage. Use the true establishment cost including working capital, and a profit figure that already deducts a wage for the owner's own work.
What is a good ROI for a franchise?
There is no single benchmark — it varies by industry, investment size and risk. Judge ROI against the payback period, the workload required, and how conservative the underlying assumptions are, rather than chasing the highest headline figure.
Will the franchisor tell me the expected ROI?
Often not. Australian franchisors are not required to provide earnings figures. If they do make an earnings claim, the Franchising Code requires it to be reasonable and supportable.
Does ROI include my own wage?
It should. If you work in the business, deduct a market wage for your labour before calculating profit, otherwise the ROI overstates the return by treating your own pay as profit.
See the full franchise glossary, the Fee Index or our buyer guides.