Franchising can be one of the most powerful ways to scale a business—because it lets you grow locations without funding every build-out yourself. But franchising is not “free growth.” It’s a business model with its own financial engine, cost structure, and profitability timeline. Many entrepreneurs make a critical mistake early: they estimate franchise revenue (fees and royalties) without truly understanding franchise costs (support, marketing, compliance, onboarding, technology, staffing, legal, sales). The result is a franchise program that looks profitable on paper but becomes strained as the system grows. To calculate the revenue and profit potential of franchising your business—and to understand the financial model step-by-step—you need to build a franchisor P&L model that is grounded in reality, aligned with what franchisees need to succeed, and scalable. Use the FMS Royalty Calculator This guide explains how to do that. 1) Start With the Two Financial Models You Must Understand When you franchise your business, you’re really building two models at once: A) The franchisee unit economics model This answers: Can the franchisee make money? If franchisees don’t win financially: - you won’t sell units consistently - you won’t keep units open - you’ll face disputes, defaults, and brand damage B) The franchisor revenue and profitability model This answers: How does the franchisor generate revenue and build an enterprise? A franchisor’s financial model is about: - up-front franchise fees - recurring royalties - brand fund contributions (if any) - supply chain income (if applicable) - other fees (training, tech, renewal, transfer, etc.) - the cost to recruit, launch, and support franchisees You cannot accurately calculate profit potential without modeling both sides. A franchisor’s profitability is tied directly to franchisee health. 2) Step One: Validate Franchisee Unit Economics First