A GENERAlIZED MErnOOOLOGY TO EsTABUSH A
VALUE OF 11IE INmAL FRANOllSE CoSTS

Graham R. Mitenko
University of Nebraska - Omaha

Omaha, Nebraska

Introduction

The strategic decision whether to operate an enterprise as a sole proprietor or with a
partner has plagued entrepreneurs for many years. A partnership is usually advantageous
over a sole proprietorship if, with the inclusion of a partner, some type of synergy is
achieved. In the generic sense, this synergy is what franchising attempts to produce. One
type of synergy which franchising provides is knowledge, more specifically, strategic
operational experience. The franchisors provide operational experience to blend with the
sole proprietor's capital in an attempt to make a business more successful. Sole propri-
etors, therefore, attempt to reposition themselves and their establishment on the industry's
learning curve by joining forces with a franchisor. The purpose of this research is to
establish the value of this repositioning by presenting a model using a quantitative ap-
proach for assessing the benefits of the franchising contract.

Background and Literature Review

An appropriate description of the literature in the franchising area is best descnbed in
a quote by Caves and Murphy [6],

Franchised businesses account for over 38% of all retail sales in the United
States and originate 12% of the gross national product, yet the franchise ele-
ment has largely escaped economic analysis.

The published articles in franchising generally follow two broad based sub-areas of
franchising. The first sub-area of the literature focuses on organizational economics. In
a classic article, Coase [7] stated that economic organizations follow one or two general
forms. The first form an organization will follow is that of the market organization. That
is, the market that a firm is competing in helps develop and conform the firm to the
market demands. The second form an organization will follow is that of the firm's or-
ganization. A firm's organization is a pre-ordained market structure, not influenced as
much by the market forces, as it is by head office dictum. Organizational and manage-
rial topics are explored in a number of articles ([2], [6], [23], [18], [21]).

The second sub-area compares the operations of franchisees with that of the franchisors.
Research in this area compares the performance of franchisees with that of franchisors
([3], [16], [11], [22]) and also explores the trade-offs between franchise fees and agency
problems ([4], [5], [21]).



16 Journal ofBusiness Strategies Vol. B,No. 1

Many articles provide purely qualitative criteria by which franchises can be evaluated.
These articles are usually found in publications such as Venture, Money, INC, and Busi-
ness Week. The finance area is replete with articles dealing with valuation, however,
empirical studies in the area of franchise valuation have not been as plentiful in the
management and operations area. The equations used in this research were primarily
derived and developed by the author.

Statement of the Problem

Franchising comprises a significant portion of American business. The International
Trade Administration states "... that franchise 'business accounted for $591 billion in an-
nual sales in 1987. Retail franchising amount to $515 billion which is 33% of total U.S.
retail sales" [17].

The purported benefit of buying into a franchise is the reduction of risk gained by the
repositioning of the sole proprietorship on the individual business' learning curve. How-
ever, since the same business also can be a non-franchised independent sole proprietor-
ship, an evaluation should be made to determine whether joining a franchise provides
risk reduction equal to or greater than the purchase price of the franchise. The purpose
of this study is to present and test a model for determining the value of joining a fran-
chised organization. The test will determine if becoming a franchisee is a prudent in-
vestment

Research Design

The prospective income from business assets gives them value [25]. In the case of a
franchise, value accrues from the help and additional operational knowledge provided by
the franchisor to the franchisee. The transference of entrepreneurial expertise repositions
the franchisee on that industry's learning curve. The benefit of this repositioning may
be measured by the decrease in entrepreneurial failure rates of new franchises versus new
non-franchised firms. The success rates may also be calculated for both the new fran-
chises versus new non-franchised firms (note: 1.0 - the failure rates = the success rates).
The value of the franchising license can be calculated using the difference in the success
rates between franchised and non-franchised firms.

This research looks at comparable investments of both franchised and non-franchised
businesses. This is not to suggest that the same type of business could not be entered
into on a non-comparable basis, but non-franchised operations are usually smaller and do
not have the capital resources to consider franchising as an option. For example, a sole
proprietor could open a small hamburger shack for considerably less than a McDonalds
outlet, however, the businesses would not compare in types of operations. This rese~h
is interested in comparing franchised and non-franchised businesses for like operations in
which the initial investment for establishing the businesses are essentially the same.

Assuming identical businesses (ie., identical assets and products), the cost of opening
a business to a non-franchisee (independent sole proprietor) is equal to that of a franchi-



Spring 1991 Mitenko: Generalized Methodology 17

see less the licensing costs. Almost all basic business expenses remain the same regard-
less of whether the business is independent or franchised [14]. For example, one could
open a hamburger stand identical to McDonalds, serve the same generic food and in every
way duplicate a McDonalds-type atmosphere without infringing on McDonalds' trademarks.
The cost (construction and operation) of this independent proprietorship should approxi-
mate that of McDonalds, without the licensing cost for the McDonald's trademark usage.
This leads to the development of the first equation:

(1)
where:

ks =cost of an independent proprietorship
kr = cost of a franchise*
let = licensing costs **

• Assuming identical businesses, the cost of a franchise includes all the same cost
incurred by an independent proprietorship plus the cost of the franchise license.

**The licensing costs take into account the franchising, advertising, and miscella-
neous on-going fees.

The benefits of franchising should therefore, at minimum, cover the licensing cost of
franchising in order to make franchising a prudent investment. The licensing cost, some-
times referred to as the franchise fee, is usually an initial commitment fee (due prior to
opening) and very often can be a major cost component of franchising. The franchises
in this research charge a franchise fee which ranges from .03% to 937% of the estimated
start-up cost of an independent proprietorship. The average franchise fee was 97% of
the estimated start-up cost of an independent proprietorship.

The benefits of franchising can be measured by the increased probability of success
due to membership in a franchise. The increased probability of success due to member-
ship in a franchise can be obtained by subtracting the percentage of the success rates of
the franchised form of business from the non-franchised form of business. Once again,
this point can be illustrated by using the previous hamburger stand example. In order to
determine the success differential that franchising makes, the prospective franchisor would
have to compare the success rates of independent proprietorships with those of franchised
outlets. Assuming that franchising leads to a more successful venture, the difference
between the two rates would be the increased probability of success due to inclusion in
a franchise. This leads to the derivation of the second equation:

(2)
where:

Pi = increased probability of success due to membership in a franchise.
Pf = the percentage success rates of the franchised form of business.
Pn = the percentage success rates of the non-franchised form of busi-

ness.



18 Journal ofBusiness Strategies Vol. 8, No. 1

Loss exposure is generically defined as that dollar value of an asset or investment which
is exposed as a possible loss. The reduction in loss exposure to an individual investor
may therefore be defined as the amount of the investment that is shielded from possible
loss. One way of reducing loss exposure would be to increase the probability of suc-
cess. The amount of reduced loss exposure may be defined as the increased probability
of success multiplied by the cost of a business to an independent proprietor. This leads
to the third equation:

Lx = PiCKJ
where:

Lx = the reduced loss exposure

(3)

Once again, this idea can be demonstrated by using the hamburger stand example. As-
sume that the cost of a non-franchised McDonalds clone required an investment of
$300,000. Given that a non-franchised hamburger stand has an 80% probability of fail-
ure and a franchised hamburger stand has a 30% probability of failure, the realizable loss
exposures can be calculated. The realizable loss exposure concerning failure of a non-
franchised burger stand would be $240,000 (80% x $300,000). The realizable loss ex-
posure concerning failure of a franchised burger stand would be $90,000 (30% x
$300,000). The probability of failure due to the inclusion in a McDonalds' franchise is
50% (80% - 30%) less. Therefore, by joining the McDonalds' franchise, the probability
of realizable loss exposure has dropped $150,000 ($240,000 - $90,(00). This reduction
in loss exposure is due to the diminished probability of failure.

This reduction in loss exposure represents the added value of belonging to a franchise.
The added value of belonging to a franchise should be greater than or equal to the li-
censing cost of the franchise. An investment in a franchise would not be considered
prudent if the projected monetary gains of belonging to a franchise were not greater than,
or equal to, the cost of the franchise license. In other words, an entrepreneur should not
consider purchasing a franchise license whose cost would exceed the protection offered
by the reduction in loss exposure. This leads to the derivation of the fourth equation,
the cost of the franchise license should be less than, or equal to, the value received through
the reduction in loss exposure:

(4)

Continuing with the previous example, if the entrepreneur could obtain a McDonalds'
franchise for less than $150,000, it would be considered a prudent investment, because
the reduction in loss exposure by joining the franchise was calculated to be $150,000.
If the costs of the franchise license were greater than $150,000, the cost would exceed
the protection offered, and therefore should not be considered a prudent investment.

As previously stated, the added value of a franchising license should be greater than
or equal to the reduction in loss exposure [loss exposure was derived in eq. 3, Pj(KJ].
This is shown by the fifth equation:



Spring 1991 Mitenko: GeneralizedMethodology

AVf > Pj(KJ
where:

AVf = is the added value of a franchise license.

19

(5)

The sixth equation then shows that the added value of a franchising license should be
greater than, or equal to, the cost of that same license:

(6)

In summary, the cost of joining a franchise is the cost of a franchising license to a
sole proprietor. The added value of joining a franchise to that sole proprietor is thus
defined as the value obtained by the differentials in probability of success between a non-
franchised and a franchised business multiplied by the cost of establishing an indepen-
dent proprietorship. This value also represents the reduction in loss exposure.

The data used in this study came from many sources. The success rates of the two
types of businesses (franchise and sole proprietorship) were not available, however, the
failure rates of the two types of businesses were available. The minimum start-up costs
for an independent proprietorship and the licensing costs (franchise fee), the business
success rates and other data was obtained through information published in Venture,
Entrepreneur, The Department of Commerce business failure rates, the franchises' indi-
vidual 1D-K's and the franchises' individual Uniform Franchise Offering Circulars.

Method

Atkinson [3] provides success factors for both franchise and independent businesses.
These factors indicate the probability that a business will still be operating in a given
year. The difference between the success factors was defined as Pi (eq. 2) which is the
increased probability of success due to membership in a franchise. The success factors
are listed in Table 1.

Table 1

Calculation of the Increased Probability of Success of a Franchise

Years of
Operation

Success Factors
FfanclUse Independent

Increased Probability
of Success

1
2
3
4
5

6-10

93%
94%
93%
93%
92%
90%

62%
43%
33%
27%
23%
16%

35%
51%
60%
66%
69%
74%



20 Journal ofBusiness Strategies Vol. 8, No. 1

The increased probability of success being associated with a franchise is the converse
of the increased probability of failure for not being associated with a franchise. Taking
the present value of the decreased probability of failure and applying a 9% discount rate,
provides the present value of the maximum amount of risk reduction provided by a fran-
chise license in anyone given year. The 9% discount rate was taken from the Ibbotson
and Sinquefield study [13] and represents the return of the market in a diversified portfolio
(the discount rate of a comparative alternative investment). The results are given in Table
2.

Table 2

Calculation of the Present Value of the Loss Factor for a Franchise

Years of
Qperadon

1
2
3
4
5

6-10

Increased Probability
of Failure

35%
51%
60%
66%
69%
74%

Present Value of the
Probability of Failure

32.1%
42.9%
46.3%
46.8%
44.8%
31.3%

A comparison of the present value of the loss factors indicates that the maximum
amount of risk reduction provided by purchasing a franchise is 46.8% of the invested
capital. Therefore, 46.8% multiplied by the cost of an independent proprietorship (.KJ will
give the overall value of risk reduction obtained through franchising.

The value of the invested capital in an independent business was obtained through data
provided by the franchisors as reported in Venture. The value of an independent busi-
ness was previously defined to be the start-up cost of a franchise business less the li-
censing costs (IG in Eq. 1)

A Franchise Benefit Index was developed by the author to aid the reader in determin-
ing which franchises should be considered as a prudent investment based on the loss ex-
posure criteria. The Franchise Benefit Index commonsizes the investments in both the
franchise license and the initial start-up costs and indicates the franchise benefit as a
percentage of invested capital. Invested capital in this case is the cost of an independent
business to a sole proprietor. The larger the Franchise Benefit Index, the better the in-
vestment as a greater percentage of capital is exposed to less risk.

Vi = <KI - LJIKs
where:

Vi = the Franchise Benefit Index

(7)

The franchise benefit was obtained by subtracting the reduction in loss exposure from
the franchise licensing cost (or franchise fee, as it is more commonly referred to in some



Spring 1991 Mitenko: Generalized Methodology 21

of the literature). The franchise benefit is the excess or deficit coverage of the loss
exposure divided by the franchise fee. Using the previous hamburger stand example, given
that a company's loss exposure had been calculated to be $150,000 and the franchise fee
was $75,000, the franchise benefit is $75,000 ($150,000 - $75,000). The reduction in
loss exposure was obtained by multiplying the cost of an independent proprietorship by
the increased probability of success due to membership in a franchise ($300,000 x 50%:
(Eq.3». The Franchise Benefit Index was then calculated by dividing the franchise benefit
by the invested capital. Any franchise which has a Franchise Benefit Index in excess of
zero. may be considered a prudent investment based on the previously discussed loss
exposure criteria (the franchise benefit is positive which meets the criteria put forth in
Equation 5). The higher the franchise value index, the better the investment The rea-
son for this is that the higher the index, the higher the coverage of the franchise benefit
on the invested capital. For example, consider two franchises with an identical franchise
benefit of $75,000. Investment A requires an initial capital outlay of $400,000. Invest-
ment A would be considered the better investment because the franchise benefit (i.e., that
amount of benefit which is greater than the franchise licensing costs) indicates a greater
amount of coverage on the initial capital outlay. An independent proprietorship would
be a more prudent investment than a franchise if the Franchise Benefit Index was less
than one.

Results and Conclusions

Appendix A provides an evaluation of various franchises sorted by the franchise value
index. In some cases the franchise value index is undefined. This is due to the fact
that some franchises have a franchise fee, but have no invested capital requirements (i.e.,
they sell the franchisee the franchise, however any goods or services are sold on a pass-
through or consignment basis requiring no initial investment by the franchisee).

Analyzing the 1989-1990 data from one hundred and forty-nine franchises using the
loss exposure method descnbed in this paper revealed some interesting findings. First,
all of the franchises that were judged to be a non-prudent investment (from the franchisee's
point of view) did not have a tangible product associated with their franchise's main line
of business (i.e. hamburgers, pizzas etc.) A tangible product, however, was not a guar-
antee that a franchise would have a positive value index. Most of the franchises that
had a negative franchise benefit index were service related industries. The worst catego-
ries of business according to the franchise value index were: the health and fitness busi-
ness (87% of those tested had a negative franchise benefit index), the packing and ship-
ping and the maintenance and cleaning businesses (83% of both industries had a nega-
tive franchise benefit index), and real estate franchises (57% of those tested had a nega-
tive franchise benefit index).

There does not appear to be any relationship between a company's franchise value index
ranking and its franchise fee (r = .0098). There appears, however, to be somewhat of
a relationship between a company's franchise value index ranking and the company's
invested capital (r = .1736). This relationship may be explained in two ways. First,



22 Journal ofBusiness Strategies Vol. 8, No.1

the more money that one has invested, the more determined that that person will work
to make their franchise a success and; second, the more money that one has invested,
the more one needs that extra protection of the capital that is offered by joining a fran-
chise. This is also shown by looking at the relationship between the franchise value index
rank and the franchise fee as a percent of invested capital (r2 ::: .2349). In general, the
smaller the franchisee fee is, as a percent of invested capital, the better the company's
franchise value index ranking.

The research indicated a number of franchise offerings which have positive franchise
value index. If there were more than four individual franchises in a business type, the
business types were organized into categories in order to determine which business types
should be considered for investment. The franchise category of hoteVmotcl and fast food
were the business types which had the highest overall average franchise value index.
Furthermore, none of the franchises in the hoteVmotel or fast food categories had a nega-
tive franchise value index.

This paper developed a generalized method to determine whether investing in a fran-
chise is prudent. The success rates of both the franchised and the independent entrepre-
neurs in this model were obtained from aggregate data. The success rates for specific
ventures may depend on individual factors which could affect the outcome. These fac-
tors may include such diverse items as: number of years in business, start-up costs,
pending legal action and exclusivity. Although this is not an inclusive list, it does rep-
resent some of the variables that may alter the success rate, and therefore affect the
outcome. Future research in this area of franchising is necessary.

Franchising is playing an increasingly important role in American business and quali-
tative measures alone may not be the best method of benefit analysis. The quantitative
methods developed in this paper should provide an additional tool in evaluating a fran-
chise to determine if an investment should be made.

References

1. Anderson, E.E. "The Growth and Perfonnance of Franchise Systems: Company Versus
Franchisee Ownership." Journal of Economics and Business, Vol. 36 (1984), pp. 421-431.

2. Alchian, AA. and Demsetz, H. "Production. Information Costs and Economic Organization."
American Economic Review, Vol. 62 (December, 1972), pp. 777-950.

3. Atkinson, J.F. "Franchising, The Odds on Favorite." International Franchising Association
Handbook (1968).

4. Blair, R.D. and Kaserman, D.L. "Optimal Franchising." Southern Economic Journal, Vol. 48
(October, 1982), pp. 494-505.

5. Brickley, JA. and Dark, F. "The Choice of Organizational Form: The Case of Franchising."
Journal of Financial Economics, Vol. 18 (June, 1987), pp. 401-20.



Spring 1991 Mitenko: Generalized Methodology 23

6. Caves, P.E. and Murphy W.F. II. ''Franchising: Firms Markets and Intangible Assets." Southern
Economic Journal, Vo1. 42 (April, 1976), pp. 572-86.

7. Coase, RH. I'The Nature of the Finn." Economild!, Vol. 4 (November, 1927), pp. 386-405.

8. Croft, N.L. "Getting Past the Hassles." Nation's Business (May, 1988), pp. 49-50.

8. -. "The Great American Dream Machine." Nation's Business (May, 1988) pp. 39-46.

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88 (April, 1980), pp. 288-307.

11. Garrett, E.M. ''Franchises on a Roll." Venture (March, 1988), pp. 39-47.

12. "Great Expectations." Venture (December, 1988), pp. 48-49.

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15. Justis, R.T. and Judd, R "Master Franchising: A New Look." Journal of Small Business (July,
1986)pp. 16-21.

16. Jones, C. The Best 200 Franchises to Buy: The Source Book for Evaluating the Best Fran-
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17. Kostecka, A. Franchise Ojmortunities Handbook. United States Department of Commerce,
21st edition (January 1988), p. xxviii.

18. Knight, RM. ''Franchising from the Franchisor and Franchisee Points of View." Journal of
Small Business (July, 1986), pp. 16-21.

19. Mathewson, G.F. and Winter, RH. '''The Economics of Franchised Contracts." Journal of Law
and Economics. Vol. 28 (October 1985), pp. 503-526.

20. lee, L.W. ''Franchising and Interbrand Competition." Southern Economic Journal, Vol. 51
(July, 1984), pp. 219-234.

21. McNulty, P. "On the Nature and Theory of Economic Organization." Histoty of Political

Economy. Vol. 16, No.2 (1988), pp. 233-253.

22. Norton S. "An Empirical Look at Franchising as an Organizational Form." Journal of Small

Business Vol. 61, No.2 (1988), pp. 197-218.



24 Journal ofBusiness Strategies Vol. 8, No. 1

23. O'Hara. MJ.. Musgrave, F.W. and Wade, T.L. '''The Effects of Ownership and Investment
Upon the Performance of Franchised Systems." American Economists: to be published in a
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Law and Economics, Vol. 21 (April 1978), pp. 223-233.

25. Weston, FJ. and Copeland, T.P. Managerial Finance. Eighth Edition, Chicago, n: Dryden
Press (1986), p. 689.

Appendix A

Fraachise ADalysis Sorted by BosiDess Type

IDvested Franchise Loss Franchise Value
Falchl. Rgalpcp Type !:uUlIl Em "EvJosgR .YaW IIuk.I Da:iIiml

1 Nows Windshield Repair Auto Maintenance 6,250 2,900 2,925 25 0.4 Franc.
2JitIyLube Auto Maintenance 116,000 35,000 54,288 19,288 16.6 Franc.
3 F1yiDg Cololll Auto Maintenance 22,400 15,000 10,483 (4,517) (20.2) 1Ddep.
4 Laser Lube Auto Maintenance 35,850 19,500 16,778 (2,722) (7.6) 1Ddcp.
5Eaglcspecd Auto Maintenance 49,600 17,500 23,213 5,713 11.5 Franc.
6 Ameri-Mobile Car Care Auto Maintenance 61,900 20,000 28,969 8,969 14.5 Franc.
7 Meineke Mufilers Auto Maintenance 74,250 22,500 34,749 12,249 16.5 Franc.
811dyCar Auto Maintenance 43,450 12,500 20,335 7,835 18.0 Franc.
9 AutoSpa Auto Maintenance 117,000 25,000 53,352 33,352 29.3 Franc.
10 Sparks Thnc-Up Auto Maintenance 114,000 20,000 53,352 33,352 29.3 Franc.
11 Precision Thne Auto Maintenance 224,350 20,000 104,996 84,996 37.9 Franc.
12 Midas MulDer Auto Maintenance 317,900 10,000 148,777 138,777 43.7 Franc.
13 U.s.ve Auto ReDta1 Auto Rental 42,200 17,000 19,750 2,750 6.5 Franc.
14 Ugly Duck1iDg Rent·A·Car AutoReDta1 323,300 52,00 151,304 99,304 30.7 Franc.
15 Cindy's CUmamon Rolls Bakery 55,250 25,000 25/357 857 1.6 Franc.
16 Mom's CimIamon Rolls Bakery 72,750 20,000 34,047 14,047 19.3 Franc.
17 CiDDamon Sam's Bakery 86,950 20,000 40,693 20,693 23.8 Franc.
18 T. J. CimIamons Bakery 165,100 15,000 77,267 62,267 37.7 Franc.
19 Stork News Birth Am10uncements 2,000 12,250 936 (11,314) (565.7) 1Ddcp.
20 Ylid Cards Birth Am10uncements 14,750 1,000 6,903 5,903 40.0 Franc.
21 Management Reports &. Serv. BusiDcss Services 61,750 27,500 28,899 1,399 2.3 Franc.
22 Mail BoJI:es Etc. BusiDess Services 53,750 12,2S0 25,155 12,905 24.0 Franc.
23 <lleck-X-01ange <lleck CashiDg 87,000 19,700 40,716 21,016 24.2 Franc.
2400scttec C10set OrglUlizc:lll 57,500 19,500 26,910 7,410 12.9 Franc.
25 Service Coffee Coffee Sales 1,750 12,000 819 (11,181) (638.9) 1Ddcp.
26 Compact DiBc Warehouse Compact DisaI 261,400 10,000 122,335 112,335 43.0 Franc.
27 Timbermill Storage Barns Construction 6,700 12,000 3,136 (8,864) (1323) Indep.
28 Four Seasons Greenhouses Construction 45,250 12,500 21,177 8,677 19.2 Franc.
29 AmeriStar Construction 521,650 15,000 244,132 229,132 43.9 Franc.
30 Jr. Food Mart Convenience Stores 360,000 10,000 168,480 158,480 44.0 Franc.
31 Cosmetic Design Center Cosmetics 14,600 7,500 6,833 (667) (4.6) Indep.
32 Money Mailer Direct Mail Marketing 7,000 15,000 3,276 (11,724) (167.5) Indep.
33 Dollar Discount Stores Discount Stores 77,000 15,000 36,036 21,036 27.3 Franc.
34 Dryclean U.S.A. DryOeaning 187,500 40,000 87,750 47,750 25.5 Franc.
35 Oean 'n' Press for Less Dry Cleaning 201,100 25,000 94,115 69,115 34.4 Franc.
36 Auto Mechanic Training Education 8,100 10,000 3,791 (6,209) (16.7) 1Ddep.
37 Gymboree Education 16,200 16,000 7,582 (8,418) (520) Indcp.



Spring 1991 Mitenko: Generalized Methodology 25

38 Sylvan Learning Centers Education 53,300 24,750 24,944 194 0.4 Franc.
39 Huntington Learning Center Education 78,900 TI,500 36,925 9,425 11.9 Franc.
40 Dunkin' Donuts Fast Food 134,400 35,000 62,899 TI,899 20.8 Franc.
41Blimpie Fast Food 92,300 16,500 43,196 26,696 28.9 Franc.
42 Taco Bell Fast Food 206,150 35,000 96,478 61,478 29.8 Franc.
43 Subway Sandwiches Fast Food 53,900 7,500 25,225 17,725 32.9 Franc.
44 Arby's Fast Food 324,000 37,500 151,632 114,132 35.2 Franc.
45 Gourmet Pizza Fast Food 73,000 7,500 34,164 26,664 365 Franc.
46 Fajita Junction Fast Food 194,000 17,500 90,792 73,292 37.8 Franc.
47 Dairy Queen Fast Food 362,300 30,000 169,556 139,556 38.5 Franc.
48 Taco John's Fast Food 213,600 16,500 99,695 83,465 39.1 Franc.
49 Domino's Pizza Fast Food 103,100 6,500 48,251 41,751 405 Franc.
50 McDonald's Fast Food 393,000 22,500 183,924 161,424 41.1 Franc.
51 Wendy's Hamburgers Fast Food 562,250 30,000 263,133 233,133 415 Franc.
52 Rny Rodgers Fast Food 614,150 30,000 287,422 257,422 41.9 Franc.
53 Church's Fried Chicken Fast Food 310,250 15,000 145,197 130,197 42.0 Franc.
54 Popeyes Fried Chicken Fast Food 310,750 15,000 145,431 130,431 42.0 Franc.
55 Jack in the Box Fast Food 518,700 25,000 242,752 217,752 42.0 Franc.
58 Kentucky Fried Chicken Fast Food 903,000 20,000 422,604 402,604 44.6 Franc.
59 Hardee's Fast Food 'nl,450 15,000 337,639 322,639 44.7 Franc.
60 A Night With The Stars Fund Raising 15,100 16,650 7,067 (9,583) (635) Indep.
61 Basquettes Gifts 75,250 12,500 35,217 22,717 30.2 Franc.
62 Fantastic Sams Hair Cutting 64,600 25,000 30,233 5,233 8.1 Franc.
63 Easy Hair Hair Cutting 64,000 20,000 29,952 9,952 15.6 Franc.
64 Cost Cutters Hair Care Hair Cutting 53,500 12,500 25,038 12,538 23.4 Franc.
65 Diet Center HealtblFitness 0 18,000 0 (18,000) ••••• 1Ddep.
66 Total lifeStyle HealthlFitness 11,650 15,875 5,452 (10,423) (895) Indep.
67 Num-Bolie Weigth Reduction HealtblFitness 15,950 17,900 7,465 (10,435) (65.4) Indep.
68 Woman at Large Healtb/Fitness 20,500 17,000 9,594 (7,406) (36.1) Indep.
69 Physicians Weight Loss HealtbIFitness 46,250 32,500 21,645 (10,855) (235) Indep.
70 Nat. Health Enhancement HealtblFitness 26,450 16,250 12,379 (3,871) (14.6) Indep.
71 Nutri/System Weight Loss HealthlFitness 66,150 34,500 30,598 (3,542) (5.4) Indep.
72 Jazzercise HealtblFitness 1,550 500 725 225 145 Franc.
73 Decorating Den Home Decorating 17,500 12,900 8,190 (4,720) (26.9) lndep.
74 Deck the Walls Home Decorating 159,500 35,000 74,646 39,646 24.9 Franc.
75 Super 8 Motels HoteVMotel 1,400,000 20,000 655,200 635,200 45.4 Franc.
76 Hampton Inn HoteVMotel 3,092,000 35,000 1,447,056 1,412,056 45.7 Franc.
77 Quallty/Comfort Inns HoteVMotel 3,783,500 40,000 1,770,678 1,730,678 45.7 Franc.
78 Days Inns of America HoteVMotel 3,625,000 29,000 1,696,500 1,667,500 46.0 Franc.
79 Park Inn International HoteVMotel 3,5T1,050 13,500 1,650,659 1,637,159 46.4 Franc.
80 Compri Hotel HoteVMotel 8,955,250 30,000 4,191,057 4,161,057 465 Franc.
817.ack's Ice aeamIYogurt 103,800 20,000 48,578 28,578 Tl5 Franc.
82 I Can't Believe It's Yogurt Ice aeam/Yogurt 124,650 20,000 58,336 38,336 30.8 Franc.
83 Penguin's Place Frozen Yogurt Ice aeam/Yogurt 166,900 25,000 78,109 53,109 31.8 Franc.
84 J. Higby's Yogurt Ice aeam/Yogurt 134,000 20,000 67,712 42,712 31.9 Franc.
85 California Yogurt Ice aeam/Yogurt 155,000 20,000 72,540 52,540 33.9 Franc.
86TCBY Ice aeam/Yogurt 168,750 17,000 78,975 61,975 36.9 Franc.
87 Perkits Yogurt Ice aeamIYogud 84,400 2,000 39,499 37,499 44.4 Franc.
88 Duraclean Maintenance!Cleaning 400 18,350 187 (18,163) (4,540.7) Indep.
89 Coverall Maintenance/Cleaning 950 8,900 445 (8,455) 890.0) Indep.
90 Coustic Glo Maintenance!Cleaning 3,300 17,375 1,544 (15,831) (479.7) Indep.
91 Servpro Maintenance/Cleaning 6,950 32,500 3,253 (29,247) (420.8) Indep.
92 Rainbow International MaintenancetCIeaning 5,600 15,000 2,621 (12,379) (221.1) Indep.
93 Merry Maids Maintenance/Cleaning 8,300 17,500 3,884 (13,616) (164.0) Indep.
94 TGIF Maintenance!Cleaning 4,700 8,500 2,200 (6,300) (134.1) Indep.
95 Jani-King MaintenancetCIeaning 6,400 10,250 2,995 (7,255) (113.4) Indep.
96 Master Works Maintenance/Cleaning 10,950 14,248 5,125 (9,123) (833) Indep.
97 Service Master Maintenance/Cleaning 15,900 13,600 7,441 (6,159) (38.7) Indep.



26 Journal ofBusiness Strategies Vol. 8, No.1

98 Amer. Mobile Power Wash Maintenance/Oeaning 22,900 15,000 10,717 (4,283) (18.7) lndep.
99 Cbem-Dry Maintenance/Oeaning 9,800 4,550 4,586 36 0.4 Franc.
100 CompuFund Mortgage Services 4,000 1,795 2,153 358 7.8 Franc.
101 Pady the Shipper Paclmging/Shipping 0 1,145 0 (1,145) ••••• Indep.
102 Package Plus PackaginglShipping 0 30,000 0 (30,000) ••••• Indep.
103 United Package Packaging/Shipping 21,600 15,000 10,109 (4,891) (22.6) lndep.
104 Handle With Care PackaginglShipping 11,900 6,750 5,569 (1,181) (9.9) Indep.
105 Pat Mail Centers Packaging/Shipping 28,850 15,500 13,502 (1,998) (6.9) Indep.
106 Packaging Plus Service PackaginglShipping 43,250 15,500 20,241 4,741 11.0 Franc.
107 WaynePaging Paging Systems 12,350 22,500 5,780 (1607Z0) (135.4) Indep.
108 Voice-Tel Paging Systems 95,100 20,000 44,507 24,507 25.8 Franc.
109 CeIlu.Iand Paging Systems 162,500 25,00 76,050 51,050 31.4 Franc.
110 Management Re>cruiters lnt'IPersonnel Placement 24,650 25,00 11,536 (13,464) (54.6) lndep.
111 Express Services Personnel Placement 35,200 10,500 16,474 5,974 17.0 Franc.
112 SnelliD,g Temporaries Personnel Placement 95,000 6,000 44,460 38,460 40.5 Franc.
113 Pets Are lnn Pet Care 3,500 5,300 1,638 (3,662) (104.6) Indep.
114 Pet Nanny Pet Care 7,200 5,200 3,370 (1,830) (25.4) Indep.
115 American Speedy Printing Printing/Copying 65,250 39,500 30,537 (8,963) (13.7) lndep.
116 Minuteman Press Printing/Copying 48,300 24,500 22,604- (1,896) (3.9) lndep.
1171nsty-Prints Printing/Copying 85,500 40,000 40,014 14 0.0 Franc.
118 Print Shack Printing/Copying 47,450 17,500 'Zl;107 4,707 9.9 Franc.
119 PIP Printing Printing/Copying 119,500 40,000 55,926 15,926 13.3 Franc.
120 TransAmcrica Printing Printing/Copying 53,000 14,900 24,804 9,904 18.7 Franc.
121 Sir Speedy Printing Printing/Copying 74,300 17,500 34,m 17;272 23.2 Franc.
122 Belter Homes Read Fstate Real Fstate 0 24,150 0 (24,750) ••••• Indep.
123ERA Real Estate 4,630 14,400 2,176 (12,224) (2629) Indcp.
124 Reatly World Real Estate 15,600 10,400 7,301 (3,099 (19.9) Indep.
125Ambus RealFstate 39,900 25,000 18,673 (6,3Z7) (15.9) Indep.
126RPJMAX RealFstate 39,200 13,750 18,346 4,596 11.7 Franc.
127 Partners RealFstate 86,400 12,000 40,435 28,435 32.9 Franc.
128 Help-U-Sell RealFstate 45,000 4,500 21,060 16,560 36.8 Franc.
129 O>lorTyme ReDIal Services 82,900 6,000 38,797 32,7!J7 39.6 Franc.
130 Sizzler Restaurants 800,000 30,000 374,400 344,400 43.1 Franc.
131 Ponderosa Restaurants 747,650 25,000 349,900 324,900 43.5 Franc.
132 Shoney's Restaurants 499,300 12,500 233,672 'Zl1,172 44.3 Franc.
133 Miracle-Bar Retail Hearing Adis 31,500 6,250 14,742 8,492 27.0 Franc.
134 Mooograms Today RetaUlntimate Apparel 49,450 12,500 23,143 10,643 21.5 Franc.
135 Medicine Shoppe Retail Pharmacy 65,000 18,000 30420 12,420 19.1 Franc.
136 Caddy Shack Golf Shops Retail Sporting Goods 130,000 30,000 60,840 30,840 '1.3.7 Franc.
137 Sports Fantasy Retail Sporting Goods 138,400 15,000 64,771 49,771 36.0 Franc.
138 The Elephant's Trunk Retail Toys 65,100 8,000 30,467 22,467 345 Franc.
1391be Pro Image Retail-5porting Goods 88,500 16,500 41,418 24,918 28.2 Franc.
140 Sign Up Signs 48,300 24,000 'Zl,604 (1,396) (29) Indep.
141 Fastsign Centers Signs 65,000 17,500 30,420 12,920 19.9 Franc.
142 Sign Shop Signs 580,050 15,000 271,463 256,463 44.2 Franc.
143 The Signery Signs 29,700 14,900 13,900 (1,000) (3.4) Indep.
144 Travd Agents Int'l Travel Agencies 63,900 39,500 29,905 (9,595) (15.0) lndep.
145 West Cost Video Video 167,300 32,500 78,296 45,796 27.4 Franc.
146 Bloekbuster Video Video 527,500 100,000 246,870 146,870 27.8 Franc.
147 Blockbuster Video Video 549,800 35,000 257,306 222,306 40.4 Franc.
148 SteUarVision Video Services 22,500 15,000 10,530 (4,470) (19.9) lndep.
149 Video Data Services Videotaping Services 2,500 13,950 1,170 (12,780) (511.2) Indep.


	A Generalized Methodology to Establish a Value of the Initial Franchise Costs