Cracking the code of your Franchise Disclosure Document (FDD) may feel a bit like you’ve been thrust into a high-school math test. But fear not! We’re here to turn those numbers from daunting to doable.

When a franchisor has a large number of franchised units, the use of averages may be the best way to show financial information in your Item 19 financial performance representation.   This blog is tackling averages and medians for Item 19 – you know, the item about the money stuff.

The Rule of Averages, Medians, and More

If you decide to use averages in your Item 19, you’re required to also provide the median, the number of outlets that met or exceeded the average, and the highest and lowest figures.  This rule is in place to ensure full transparency for potential franchisees. By providing these extra numbers, they get a more rounded picture of the financial expectations for your franchise.

Averages: Your Math BFF

In the broadest sense, an average represents a central or typical value in a set of data. It provides a ‘snapshot’ of your data, helping to simplify and understand complex sets of numbers.

Let’s start with averages. Picture your franchises as points on a line. Some are low, others are high, and some are right in the middle. The ‘average’ gives you a way to summarize this entire line with a single point.

So, how do we find an average? Let’s say you have five franchise outlets, with annual revenues of $100K, $200K, $300K, $400K, and $500K respectively. To calculate the average, you’d add up all these individual revenues ($100K + $200K + $300K + $400K + $500K = $1.5M), and then divide this total by the number of franchises (in this case, 5). This results in an average annual revenue of $1.5M / 5 = $300K.This average revenue offers a snapshot, a single number that gives potential franchisees a general idea of the revenues franchisees have historically earned.

Medians: The Middle Kid on the Block

The median is another kind of number that provides a different perspective on your data. It’s the middle point in your data when you line up all the numbers from smallest to largest.

Using the same five franchise outlets, if you list their revenues in ascending order ($100K, $200K, $300K, $400K, $500K), the median value falls right at $300K. It’s the middle value, with two franchise outlets earning less and two earning more.

The median is a great tool to present a ‘typical’ financial scenario, especially when you want to avoid the average being skewed by a single franchise that’s doing exceptionally well or poorly.

Medians of Even Numbered Sets: Double the Fun

The waters get a bit muddier when we’re dealing with an even number of data points. With no exact middle number, calculating the median requires an extra step.

Imagine you have an additional franchise outlet, bringing the total to six, with revenues of $100K, $200K, $300K, $350K, $400K, and $500K. The two middle values are now $300K and $350K. In this situation, you’d take the average of these two numbers to get the median. Add them up ($300K + $350K = $650K) and divide by 2, resulting in a median revenue of $650K / 2 = $325K.

Conclusion: Wrapping Up the Math Adventure

To put it simply, averages and medians are practical tools that can help you understand the financial situation of your franchise outlets. By using these tools, you can transform large amounts of data into single, understandable figures.