After doing your preliminary research, you’re convinced that franchising could be your best — and safest — model for starting your own business. Good move. But which franchise?
You need to start that decision-making process by considering the best franchise sectors, or categories. What can you anticipate in terms of franchise profit margins by industry? What is the franchise profitability by sector? What do the numbers tell you?
Take a look at several sectors, but first, a little more explanation of terms related to franchise investment returns.
A Basic Understanding of Franchise Profit Margins
By its simplest definition, your profit margin is simply the money left over after your expenses are all paid. That definition is further broken down by the terms gross profit margin and net profit margin.
Gross profit margin documents the difference between the cost of producing or providing the goods or services your markets, and the income you get from them. So if your labor costs and what you must pay your franchisor and vendors add up to $100 for each product, and you earn $125 for the sale of each of those goods or services, your gross profit margin is 20%.
Your company’s net profit margin is more encompassing. In addition to covering the costs of bringing those goods or services to market, it also covers your overhead costs: rent and utilities, interest payments, taxes, and other costs related to running your business. Your net profit margin will always be lower than your gross profit margin because it includes more cash outflow.
That said, take a look at a few typical franchise sectors and ballpark estimates on the kind of profit margins you might expect.
Top-Performing Franchise Industries by Profit Margin
The following offers varying franchise profit margins in broad terms by industry, or sector. Here are some of your top opportunities for investors in 2025, by industry segment.
Service-Based Franchises
This area of franchising includes such businesses as insurance companies, senior care facilities, education services, housecleaning, home care providers, and many others. Net profit margins for this sector can range from 15% to 30%, though the number could be much higher or lower.
The key here is that these service providers have no inventory to buy, and many have relatively little in the way of equipment, gear, and supplies to purchase in order to run their businesses.
Consider, for example, the insurance business. Your “inventory” is invisible and cost-free, and you might be able to initially run the company with little more than a laptop, business cards, and a website. That’s why profitability for this type of franchise is somewhat easier to achieve than for companies that sell goods and must make deep-pocketed investments upfront.
Food and Beverage Franchises
This is the most familiar type of franchise to many consumers. It includes such heavyweights as McDonald’s, Applebee’s Grill and Bar, Wendy’s, Taco Bell, and other highly recognized brands.
The high value of the more popular brands means that the franchise fee can be high. Investors must also lease or buy a building, set up a kitchen, hire a full staff, and buy food and beverages galore. As a result of these high overhead costs, profit margins in this sector are much lower than for service franchises.
Net margins for fast food establishments generally range between about 4% and 9%, while those restaurants at the upper end make between about 3% and 5% net profit margin.
Retail and Specialty Franchises
These sector businesses appeal to consumers, but in different ways than restaurants. Examples can include fitness franchises, automotive centers, real estate companies, and fashion and apparel stores, among others.
The net profit margins for this sector vary greatly, but can range from as low as 2% to as high as 15% or higher. One of the negative factors creating a drag on profitability here is the need to keep inventory in stock. In other cases — such as a fitness facility — you must invest in high-cost gear and equipment.
Business Services Franchises
This sector involves a range of companies that perform services for other businesses. This can include accountants, lawyers, IT professionals, travel agents, and many others.
Franchises in this area of business can typically earn between 12% and 25% net profit margins. As with franchise service organizations, this category has few overhead costs. Little or no inventory to buy, and sometimes not even the need for renting office space. The “product” being sold in this category is information. These franchisees are usually highly experienced and skilled in their fields, but they aren’t necessarily using a lot of expensive equipment, gear, or inventory.
Key Investment Considerations for Maximizing Franchise Profit Margins
You see all kinds of variability in the profit margin numbers mentioned above, even within the same franchise categories. That’s because of the many factors that determine profit and loss.
For instance, you have the location to consider. It would certainly cost much more to open a franchise restaurant in South Beach, Miami, than in suburban Akron, Ohio. Then there’s the appeal of the brand. If it’s one known and loved by millions, it will — and should — cost you more in franchise fees than if the name is relatively unknown.
The higher your startup costs, the longer it might take to achieve your breakeven point. If you and your investors must figure on spending millions of dollars to launch and initially operate your franchise business, you can hardly expect quick profitability. You’ll be in it for the long haul (and had better have the funding to keep you solvent until you do hit that point of profitability).
Don’t forget to suss out your franchise support system. If you’ve chosen your franchisor well, the organization has a track record of success. After all, why would you choose to model your own company after one that has struggled?
But how good is your franchisor at imparting all of its experience and business and marketing know-how? How will you dodge those costly mistakes all first-time franchisors make? How comprehensive is their training program? Do they stand behind their franchisees, offering 24/7 support as needed throughout the life of the franchise?
The best way to get answers to questions like these is to ask existing franchisees. Call up or email franchisees at locations far enough away from where you’ll do business that they won’t see you as a threat. That way, they’ll be more likely to respond candidly and thoroughly.
If they express frustration with inadequate training and corporate support, you might keep looking.
Industry Outlook
The near future is likely to hold new opportunities in franchising in industry sectors that might barely be on the horizon now. It’s an exciting time.
Consider healthcare and caregiving for at-home seniors as America ages. Or technology as we get deeper and deeper into the digital universe. What franchises will appear or grow as a result of the emergence and growth of artificial intelligence?
The takeaway is to do your research and stay abreast of the ever-changing cultural, business, and franchising landscape, and take your opportunities where you find them.
You’ll Find Opportunity Today and Tomorrow as a Freeway Insurance Franchisee
At Freeway Insurance, we’ve welcomed hundreds of talented franchisees coast to coast over the last few years, and we invite your interest. We have hundreds more franchise-ready markets all over the country.
Freeway is one of the nation’s largest personal lines insurance companies. Whether you’re a first-time business owner or an entrepreneur with a significant track record, we’ve got your back. We offer our franchisees a top-tier training program and ongoing support when you need and want it. We’ll even help you identify and obtain all of the certifications you’ll need in your state.
Our identity is strong, we offer savvy national marketing, and we have access to the brands our customers know and trust.
Interested in talking with a Freeway franchise representative? Simply call us up at 877-822-3024 at your earliest convenience…
You can also give us your contact information, and we’ll reach out to you.
However you reach out, we’ll show you franchise earnings potential that is sure to impress.
