Margins: Percent vs. Real Dollars — What Every Franchise Buyer Needs to Know

When evaluating a franchise, most people ask about revenue. But what really matters is how much money you get to keep. That’s where margins come in.

Margins come in two forms:

• Margin as a percent: How much profit you make on each dollar of revenue

• Margin in real dollars: The actual amount of money you take home after expenses

Too many buyers focus on just one—but the best operators understand both.

Let’s break down why margins matter, the risks of getting them wrong, and how to uncover the truth before you sign anything.

Why Margins Matter

Margins determine:

• How much cash you’ll actually make

• Whether you can survive slow seasons or bad hires

• How easy it is to grow or hire help

• Whether the business will support you as a full-time owner—or become an expensive hobby

A business with high margins gives you breathing room. You can make mistakes and still end up profitable.

A business with high revenue and thinner margins can also be great—it just demands more precision. You'll have more cash overall, but less room for error.

Example:

• 30% margins on $200K in revenue = $60K profit

• 15% margins on $1.5M in revenue = $225K profit

Which one is better? That depends on you—your skills, goals, and appetite for complexity.

The Risks of Misunderstanding Margins

If you don’t dig into margins, here’s what can happen:

• You overestimate how much money you’ll make

• You assume $1M in revenue means you're rich—but you're barely breaking even

• You don’t leave enough room to pay yourself and service your debt

• You can't afford to reinvest, grow, or even take a vacation

Even worse, some franchises present rosy revenue numbers in their sales process but gloss over expenses. Many first-time buyers don’t even realize they’re buying a job with no profit.

Real Dollars vs. Percentages: What You Need to Know

High Margin Percentages

These businesses often have:

• Low overhead

• Simple operations

• Fewer employees

• Easy-to-understand P&Ls

They’re ideal for first-time owners or people who want a lean, high-cash-flow model. They give you a buffer while you learn the ropes.

High Revenue, Lower Margin Models

These businesses typically:

• Serve more customers or have bigger ticket sizes

• Require more staff and tighter management

• Have higher fixed costs, like rent or payroll

• Produce more cash, but only if run efficiently

They’re great if you want to scale or build a team—but they leave less room for sloppiness.

The Real Answer: Know Yourself

• Are you an operational killer who can run a tight ship from day one? A lower-margin, high-revenue model might work great.

• Are you new to business ownership and likely to make some early mistakes? Look for higher-margin concepts that can absorb those mistakes.

How to Analyze Margins Accurately

Don’t just look at the FDD or trust what a franchise rep tells you. Talk to franchisees—new and experienced—and ask them questions in plain language.

Avoid terms like “gross margin” or “EBITDA” unless you're sure they know what those mean. Instead, ask:

• How much do you pay yourself per month?

• How much is left after expenses and loan payments?

• Do you have a spouse or family member working in the business?

• Do you run personal expenses through the business?

• What were your numbers in year one vs. year five?

These questions reveal what the margins really look like in practice—not just in theory.

Final Thought

Strong businesses aren’t just the ones with the most sales—they’re the ones where the math works.

You need to understand:

• How much comes in

• How much goes out

• How much is left for you

A business with great margins can give you freedom. A business without them can trap you.

At a minimum you should be looking for a business with:

• At least 20% net margins after a ramp up period, before paying a manager

• Large enough revenue to be able to pay a manager and still make a profit so you can scale into multiple locations.

You don’t need the “perfect” franchise. You need one that fits you, pays you, and gives you enough room to win.