$100K – I CAN EARN THAT!
The law of averages.
The law of averages easily explained.
Australian legendary cricketer, Don Bradman, famously achieved a career test average of 99.94 runs. However, as cricket fans know, Bradman’s actual scores varied widely. His highest score in a test match was 334 but there were plenty of times when he notched up a score below 25.
Bradman’s low scores don’t get much of a mention. He’s famous for that extraordinarily high average, sustained over a long test career.
But sometimes the lows matter and we should pay attention to them. One of those times is when you’re looking at a business opportunity. That’s when you want to know about the lows as well as the highs. Merely considering the average is not helpful.
WHAT IS THE AVERAGE?
When we hear people talk about the average, they are usually referring to the mean. This is a value that can replace every existing item, and have the same result. If you threw away all Bradman’s individual scores and replaced them with one “average” value, it would be 99.94.
Alternatively, if you weigh 70 kg and are in an elevator with a child of 40 kg and a walrus of 700 kg, what’s the average weight? What we are really asking is, “If we replaced this group with three identical people and want the same load, what would each weigh?” The answer is 270 kg.
FRANCHISE AVERAGES
If you’re buying a franchise, you might hear people talk about averages. For instance, average income. Let’s suppose the average income is $100,000.
You might be thinking, “That’s good, I can earn that. I’m going to be better than average.” Unfortunately, that thinking could lead you to overlook some important information about the actual performance of franchisees.
Look back to the example of the walrus in a lift. The average is 270 kg, but the lightest and heaviest beings in the lift are a
long way from the average. The same can be true in a franchise. In fact, it’s very likely to be true.
The chart above shows the income of 10 franchises. The average is $100,000. But note that the highest is a little over $200,000 and the lowest is below $50,000. Six franchisees make $75,000 or less. The average of $100,000 occurs because of the three franchisees who make over $150,000.
HOW MIGHT KNOWING THIS CHANGE YOUR THINKING?
You may still aim to make $100,000, but you’ll want to gather some more information to help you assess whether this is achievable in your situation. For instance, why are the low performers where they are and what are the top performers doing that gives them such strong results?
WHAT TO ASK FOR
Some franchise systems will provide this level of detail and some will provide the average, lowest and highest results. If you want more information, you could ask, “How many franchisees make more than the average?” This will give you a feel for the range of performance. If you can’t get this information, you could ask to meet franchisees with a range of performance.
However, we believe that a franchise prospect should reasonably expect to be provided with enough detail to make an informed assessment of the business, and that means more than a simple average.
So when you’re considering a franchise, don’t assume the average tells the full story. Dig a little deeper to understand the range of results and what that means for you.