margins

[Calvin]

I am looking at a few fast food franchises and wondering what type of profit margins I should be calculating.  Guidelines?

[FuwaFuwaUsagi]

You seem to be assuming there are profit margins.   Why is that?   Please be aware that you need to go back in time and recalculate old numbers for current lease obligations.   

FuwaFuwaUsagi

[Calvin]

Yes I do assume profit margins.  All the franchises I'm looking at has a profit margin after all expenses are paid.  Predicting sales for me is the hardest thing to do.  If I can't predict sales then how can I evaluate the franchise?

[FuwaFuwaUsagi]

You have lost me; but that is not necessarily hard to do.  In common parlance a profit margin is calculated by net income divided by sales. 

So, ProfitMargin = NetIncome/Sales

Since you are inquiring about the acceptable range for a ProftMargin I assumed you had Net Income and Sales figures and you wanted to compare one concept to another one.  And I was very curious as to why you assumed there would be a Net Income given the number of unprofitable ventures out there.  But more to the point is that Sales are going to be very strongly correlated to the location and are not necessarily nor likely transferable between locations, which is to say the data you have may be very suspect. 

That all aside I am still confused.  Given the equation above you can solve for any key component is you have the other two.  Since you are inquiring about Profit margin that would lead me to believe you already had Net Income and Sales figures, but then you comment that you cannot predict sales, so I am at a loss as to what you are really asking.

Confused...

[mrfranchiseman]

You have lost me; but that is not necessarily hard to do.  In common parlance a profit margin is calculated by net income divided by sales.  

So, ProfitMargin = NetIncome/Sales

Since you are inquiring about the acceptable range for a ProftMargin I assumed you had Net Income and Sales figures and you wanted to compare one concept to another one.  And I was very curious as to why you assumed there would be a Net Income given the number of unprofitable ventures out there.  But more to the point is that Sales are going to be very strongly correlated to the location and are not necessarily nor likely transferable between locations, which is to say the data you have may be very suspect.  

That all aside I am still confused.  Given the equation above you can solve for any key component is you have the other two.  Since you are inquiring about Profit margin that would lead me to believe you already had Net Income and Sales figures, but then you comment that you cannot predict sales, so I am at a loss as to what you are really asking.

Confused...

To all confused people on this topic

Start with some basic assumptions about Sales and work your numbers through to see what the profit is
Then change the sales number up or down and work through another set of numbers, etc

That is how you work through the profiatbilty model and come up with your break even point
It is all possible and there should be no confusion
e mail me your problem and I will see if I can attack it for you

mrfranchiseman.com