How Much Does it Cost to Start a Restaurant Franchise?
Last Updated: December 27, 2021
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Buying a Restaurant Franchise Rate Quotes #
Opening a new restaurant can be a risky venture. Some fail to gain name recognition while others fail because they pick the wrong location or the market is already saturated with similar restaurants.
Opening a restaurant franchise greatly eliminates those risks. You're buying into a proven business model with built-in brand recognition. Whether you're opening a sit-down restaurant, sandwich shop, or fast food joint, you have the support and assistance of a major corporation behind you. They'll help you pick a location and provide marketing services, too.
Owning a restaurant franchise is ideal for the entrepreneur who is looking for a sound investment. It's not for everyone, though. Restaurant franchises are typically expensive to open and the come with very strict requirements. Franchisees need to be well capitalized and often must demonstrate previous restaurant or retail experience. But, if you can make it work the earning potential is great.
Cost to Start a Restaurant Franchise #
Restaurant franchises tend to be more expensive than others types of franchises. Initial investments begin at around $100,000 and can range upwards of several million. Most fall somewhere in the middle - generally $500,000 to $2 million.
Buying the equipment for your restaurant is a major portion of that expense. Outfitting the space to meet the franchise standards also requires a major investment. Included in your initial startup costs is what's known as a franchise fee. You'll pay tens of thousands - usually anywhere from $30,000 to $50,000 - for the rights to use the company's name. This is a one-time fee that is generally non-refundable.
- Starting an Applebee's franchise requires an initial investment of about $1 million. The franchise fee is $40,000 and franchisees are generally required to have about $1 million in net worth for each restaurant they plan to open.
- Panera estimates initial startup costs to be $816,886 to more than $2 million, excluding real estate costs. Equipment costs alone are estimated at about $185,000 to more than $310,000. The franchise fee is $35,000.
- Starting a Burger King Franchise costs anywhere from $300,000 to $3 million, depending on location. The initial franchise fee is $50,000. Franchisees are expected to have a net worth of $1.5 million and at least $500,000 in cash liquidity.
Keep in mind that many popular restaurant chains don't allow franchisees to open a single restaurant. Most ask owners to sign a multi-year, multi-restaurant deal within a certain geographic area. Applebee's, for example, generally requires franchise owners to open several restaurants within three to seven years.
Cost to Own a Restaurant Franchise #
In addition to the startup costs, restaurant franchises charge recurring fees known as royalties in exchange for allowing you to use the brand name. Royalties also pay for advertising and other support from the parent company.
Most restaurant franchises collect royalties based on a percentage of your gross revenues. The fees are assessed weekly, monthly or annually.
- Applebee's collects 4% of a franchisee's gross sales in royalties for the first 24 months. After that, the company reserves the right to increase the royalties to 5% of gross sales.
- Panera's royalties are 5% of gross sales.
- Burger King's royalties are relatively low for the industry at 4.5% of gross sales.