Franchisors are not required to disclose information about potential income or sales, but if they do, the law requires that they have a reasonable basis for their claims and that they make the substantiation for their claims available to you. When you review any earnings claims, consider:

The Sample Size - Say a franchisor claims that franchisees in its system earned $50,000 last year. The claim may be deceptive if it doesn’t represent the typical earnings of franchisees. The disclosure document should tell the sample size and the number and percentage of franchisees who reported earnings at the level claimed.
Average Incomes

A franchisor may claim that the franchisees in its system earn an average income of, say, $75,000 a year. Average figures tell very little about how individual franchisees perform. An average figure may make the overall franchise system look more successful than it is because just a few very successful franchisees can inflate the average.

Gross Sales - Some franchisors provide figures for the gross sales revenues of their franchisees. These figures don’t really tell about the franchisees’actual costs or profits. An outlet with a high gross sales revenue on paper may be losing money because of high overhead, rent, and other expenses.

Net Profits - Franchisors often do not have data on net profits oftheir franchisees. If you get net profit information, ask whether it includes information about company- owned outlets; they often have lower costs because they can buy equipment, inventory, and other items in larger quantities, or they may own, rather than lease, their property.

Geographic Relevance - Earnings may vary with geography. If it’s reported that a franchisee earned a particular income, ask about the franchisee’s location. The disclosure document should note geographic or other differences among the group of franchisees whose earnings are reported and your likely location.

Franchisees’ Backgrounds - Keep in mind that franchisees have different skill sets and educational backgrounds. The success of some franchisees doesn’t guarantee success for all.