Calculate return on investment (ROI) for franchise equipment purchases, expansions, and business investments. Analyze payback periods, profit margins, and long-term profitability to make informed decisions.
Kitchen equipment, POS systems, machinery
Total upfront cost including equipment, installation, training
Additional revenue generated per year
Labor, materials, or operational cost savings per year
Your loan interest rate or required return rate for investments
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Return on Investment (ROI) measures the efficiency of your franchise investments:
Common ROI calculation approaches:
Equipment Purchases:
Franchise Expansion:
A good ROI depends on the investment type and risk level. Generally, franchise owners should target 15-25% annual ROI for equipment purchases and 20-35% for expansion investments. Higher-risk investments should deliver higher returns. Compare against your cost of capital (loan interest rates) plus a risk premium.
Calculate the annual labor cost savings from increased efficiency or reduced staffing needs. Include benefits like reduced training costs, lower turnover, and improved consistency. Don't forget to factor in maintenance costs, training, and any productivity losses during implementation.
For significant investments (over $100K) or long payback periods (over 3 years), use Net Present Value (NPV) calculations that account for the time value of money. Simple ROI is fine for smaller, shorter-term investments. Use your cost of capital (loan rate) as the discount rate for NPV calculations.
Consider best-case, worst-case, and most likely scenarios for your ROI calculations. Factor in risks like technology obsolescence, market changes, or competitive pressure. Higher-risk investments should target higher ROI thresholds. Consider the probability of achieving projected returns.