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FDD Talk 2014: Our Latest Views on Waxing the City’s Projected Sales, Expenses, and Operating Income in Years 3 and 5

by Franchise Chatter on November 27, 2014

in Franchise Earnings, Personal Care Franchise, Salon Franchise

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Waxing the City Interior

Highlights of Waxing the City’s Item 19 Financial Performance Representations (2014 FDD) – Part 2

  • You will set your own prices for your waxing services. The projected revenues are based on an average waxing service price of $34 in the second year, and $36 in the third and fifth years as you build your customer base and offer fewer discounts to attract customers.
  • Product sales are projected to be 3% of service revenue the second year, increasing to 5% and 7% in years 3 and 5, respectively. This is consistent with Waxing the City’s experience for these revenues.
  • Waxing supplies include all supplies needed to perform waxing services. It does not include office supplies or general studio supplies, which are included in Miscellaneous expense. Waxing the City has assumed the cost of waxing supplies to be 9.25% of revenues. Your experience will depend, in large part, on how you price your waxing services.
  • The commission numbers reflect commissions and payroll taxes for your aestheticians. Waxing the City has assumed that you will pay your aestheticians on a commission basis, beginning at 39% of the revenues they produce for the first 3 years, increasing to 42% after 5 years of service. For the 5th year, the franchisor assumed that the average commission paid to aestheticians was 40%. Waxing the City added 10% to these amounts to cover payroll taxes (which will vary by state).
  • However, you will decide how you want to pay your employees, and if you pay your aestheticians on a different basis, these numbers could vary significantly. Commissions at the franchised studios on which these numbers are based averaged between 39% and 42% of revenues.
  • Waxing the City assumed a 50% margin on product sales, and a 10% sales commission to the employee responsible for selling the product. You will set your own prices for your products and decide what, if any, commission you pay your employees.
  • Waxing the City has assumed that you serve as the Studio Manager and have not included your salary or benefits in the expenses. In Waxing the City’s franchisee studios, they hired someone for this position to whom they paid $40,000 a year with payroll taxes. If you hire someone for this position, you will determine the salary you pay them.
  • Apart from the Studio Manager, Waxing the City recommends that you hire 2 people to serve as Studio Coordinators for the hours your studio is open. The franchisor has assumed that between them they work 45 hours a week and are paid $12 an hour, and that you are working at the front desk the additional hours the studio is open. The total amount projected for Studio Coordinators includes salary, plus 10% for payroll taxes.
  • Your rent will vary depending on the size and location of your studio. The projections assume you lease 1,800 square feet and the gross rent paid is $30 per square foot per year. Waxing the City assumed, however, that your base rent will increase 3% each year. This is consistent with current rentals. If you have a larger studio, or you pay more for rent, your rent expense could increase significantly.
  • Weekly Royalties are 5.5% of Gross Revenues. However, Waxing the City currently offers a Franchisee Incentive Program that will reduce this percentage fee if you achieve certain Gross Revenues, meet its otherwise stated criteria, and are otherwise in compliance with requirements of your Franchise Agreement.
  • Currently, the incentive reduces the Royalty Fee to 5% on Gross Revenues exceeding $10,577 in a week, and further reduces the Weekly Royalty Fee to 4.5% on Gross Revenues above $13,462 in a week.
  • Waxing the City assumed that your Revenues are equal each week during the year, and that you have been able to take advantage of the reduction to 4.5% on the Gross Revenues exceeding $10,577 per week in the third and fifth year. However, the franchisor reserves the right to modify or terminate this program at any time.
  • Processing and credit card fees will vary depending on how many of your customers pay cash, and for those that use a credit card, which credit card they use. In Waxing the City’s experience, costs for these services generally average about 1.4% of revenues.
  • The amount for Utilities includes gas, electric, water, cable, Internet, and telephone. It assumes utilities average $2.65 per square foot.
  • After your second year of operation, Waxing the City requires you to contribute 2% of your Gross Revenues to its General Advertising and Marketing Fund.
  • The amounts for Training and Travel Costs should be sufficient to cover certification and travel costs for 3 additional aestheticians you hire each year, whether to replace employees who leave or as additional aestheticians.
  • Miscellaneous includes janitorial services, legal and accounting fees, licenses, office supplies, and similar items. Many of these costs can vary significantly depending on the location of your Waxing Studio and the time you spend looking for the best possible costs on these items.
  • Waxing the City also recommends that you set aside at least $0.25 per square foot per month to use to upgrade your Waxing Studio between the fifth and sixth year after you begin operating. It has not deducted these amounts from the projected income because these are still your monies and therefore it would not affect your profitability to set the amounts aside.

Statement of Annual Projected Revenues and Earnings for a Waxing the City Studio

Year 3

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