How much money is someone that owns one Arby's bringing in every year? I tried Google with no success.

Probably like 30-40k/year.

It really depends on the sales volume.

A typical fast food restaurant takes 13-17% to the bottom line. Franchise fees are usually 5%, so figure low end you have 6-8% of sales as profit.

So, if you are doing $3000 a day, that would work out to around 65K a year profit. Tack on another 45-50K if you run it yourself.

All that said, I have been out of restaurants for 4 years, so things may have changed.

So people are investing 1 million in startup to make 30-40k a year? Really??!

subway in prime location makes about $200k a year gross in the UK. $30k for the franchise fee and they provide training. It doesnt take $1mil to start up a fast food franchise. Usually the method for valuation is the purchase price is half the gross or the same as 1 year net. If you are paying $1mil for a fast food franchise then you should expect to be getting $1mil net. I think more realistic is $40-80k for the startup cost including franchise fees.

i've heard its very close to 1mm to get a mcd's franchise.

Yeah my dad used to own McDonald's franchises (in Australia, however). He used to pull some very very good cash, mainly because over here there was little competition. He got out of the game like 8 years ago (wow, time flies!), mainly because too many franchises were starting up, and the menu diversification (ie introducing salads etc) was starting to eat into his margin. He decided to sell up while he could still get a pretty penny.

I'd imagine it'd be next to impossible to print money using a franchise in America, the markets just too saturated.

I doubt I would pay $1mil for a franchise even one like McDonalds. Common sense should tell you there is so manny Maccy Ds a population can eat in a given year in a given area. Everyone is health conscious nowadays.

You can still do well in the states with a franchise. Look at it like any other food and bev business. You need an efficient system, good location, and strong local branding.
Corporate would have given you the right to the franchise only after deciding whether or not it's profitable to open a new store. They decide which of their new stores you get if you're a good fit for them. If you are looking to invest in a franchise be prepared for a grind. You could do really well financially but you will be putting in long hours and dealing with lots of attrition. If you aren't ready to do that I would suggest finding better use for your money. There are better options if you have some skills in workign with people and a strong business mind.

Ex: Financial Planning, Network Marketing, opening a JV with someone in the service intdustry, Head Hunting (corporate recruiting), and if you are in the top 5% of business the entrapreneurial pool there is starting a VC firm.

You don't have to pay 1 million to get a McDonalds, but they do require that in liquid assets..in the states

Some guy came in to our college to talk about owning Mcd's franchises. He owned 4-5 of them in the Champaign area. If I recall, you need 1 mil liquid for the first franchise and something like 750-1mm more for each additional one. Anyway, I want to say he pulled in about 100-150k/year per restaurant, and it wasn't like he was working day to day at them. It sounded to me like he had maybe 10-20 hours/week of stuff to do for Mcd's total.

One thing he did say is that he owned a few McD's in the St. Louis area that ended out failing. I was surprised to hear this but I think they were in a fairly bad part of town and had a hard time getting good employees and the restaurant just had a terrible reputation for poor quality.

Overall, if I had the opportunity to buy a Mcdonalds in an average or better location, I'd do it in a second. It's not glamorous and it's hard work (for the people actually on site, at least), but you're going to make money. It's be nice to have a few Mcd's thrown into an otherwise diversified portfolio of equities/RE/etc.

tc

The best idea for starting a new restaurant business is to sample local specialties then bring those ideas to new towns with similar demographics and where you still have reasonable access to the same ingriedients. You'll make a ****load more than opening a ****ty MCD.

Taylor,

I know a number of owners, and they are all in high end areas. One thing I think you are missing is that even in the good areas, it is hard to find good employees. Local kids don't want to work there because they are rich/spoiled/lazy/dont wanna work at mcdonalds/whatever else. The owners don't want employees from far away that no show all the time. Employees giving free food is a problem with every business. The most successful owner that I know is at his restaurants quite a bit, if it does nothing else, the people that work that see the owner more often making it less likely that there will be as much food loss. In addition, owners who are more involved in ANY business are usually more successful (although I am sure there are good exceptions)

example?

you must have many given your confidence

If I give you one, will you start it for me and give me a 10% finders fee?

I bought two poorly run Subway franchises and turned them around. Sales growth of 20 percent year over year for both. Money is still around to be printed if your willing to work for it. Currently my only problems are with Subway corporate itself and its unwillingness to help franchisee's ( a gotcha kind of inspection system is now in place, causing franchisee's to worry about inspections rather than sales )


A busy location can pull in 10-20% gross profit. A slower location might do 0-10% though. The key to these type of restaurants is to have a strong enough location that your sales can reduce your labor cost percentage. Busy stores may require more employee hours but they will be more productive.


Last week breakdown at my busy store

Sales 15,000 ( this is 50% more than subway nation wide avg )
Royalties Adv 12.5% ( always 12.5 per dollar sold)
Elec 225/wk
Gas 20/wk
Trash 50/wk
Labor 3,400/wk ( not including my time )
Food and Drink cost 34% ( this varies between 32-36% depending on sales and food prices )
Maintence 125/wk ( varies but averages to be 500 a month
Rent 500/wk ( mine is normal but low for how good a location it is )

So I pulled in 3500/wk in profit. I take out 1200 to pay down my note, and 750/wk in admin expenses ( paying self ). If i was debt free and did not draw any income from the store I would be making about 150k a year at this volume.


My slower store though only does 5500/wk in sales but its labor is still 1800/wk. Notice that insane labor percentage. You can only cut labor so much. Having busy hours all the time is the key to a profitable franchise. If it was my only store I would only need maybe 1000/wk in labor. But I would be working 60+ hours a week in the store for about 800 bucks a week. So buying a slower store is buying yourself a job. After maintence and Subway forced upgrades the location barely makes any money. I can probably make another year of sales gains at the location before I hit a wall. Then I plan on selling it off. Its not worth the work for value gained.

A guy I went to school with is a director of operations or something for Arby's in SW Michigan. He said their average store in that area grosses around 1.5 mil a year. They're profiting much more than 30-40k a year.

I know an area supervisor for Papa John's. Their best store did 1.2 mil last year and profited around 180k. Their worst store did less than half that and made close to nothing.

There are tons of statistics to refute this, and its simply wrong.

What are the laregst items in this category?

So many in fact that you couldnt even list one in your post...thanks for your valuable contribution.

Cheese and meats are the most expensive items. Veggies are so cheap we do not charge extra for requesting extra lettuce for instance. But cheese is about 10 cents a slice so that would add up quick. If a footlong costs about 1.70 in food about 1.20-1.30 of that is in the meat and cheese.



Too bad people do not like salads much, selling veggie salads for 5 bucks a pop would have insanely low food cost.

Finding reasonable access to ingredients is not as easy as it sounds. Finding consistent suppliers at a reasonable price for ingredients is one of the reasons for being with a franchise. Having to call and yell at your supplier yourself about how terrible todays tomatoes are works a lot better when it is 1000 people all working together.


In general large franchises save tons on buying food in bulk and passing the savings on to franchisees. Of course the royalty fee's take this all back. It does however help mitigate that 6-8% going out the door to your corporate overlords.

I would be interested in hearing more about this. How did you increase sales? What other improvements did you make? How did you find the Subways for sale? How much did they cost (in terms of profits)?

Absolutely. Its basically similar to how an index fund is shopped to mom and pop. Conservative investors look at an index fund as allowing them to be involved in the market without having to take on the level of risk associated with holding just a few names while also minimizing trading costs at the same time.

Franchises function in a similar way. You get a known successful brand and product. You dont need to worry about a number of the risk factors associated with indepedent businesses. However the biggest risk factor, location, is just as relevant. The downside is there is intense competition and the thread of new entrants is very high. So even if you were lucky enough to be in top 0.5% who actually hit a home run instead of just earning a decent middle class living, you are always vulnerable to franchisees coming to town and opening in your neighborhood.

Obv the model I'm suggesting is riskier but when youre the first and only in your town to offer a hot product, the returns can be enormous. Yes you dont get things handed to you like you do in a franchisee program, but with hard work and good decision making, it is the far superior option.

Increased sales by treating my employees better, and firing bad ones. The previous owner was very absentee and did nothing. Fixed operations to be more focused on customer service. Did minor promotions involving giving away free subs. Free drives in customers much better than dollar off coupons. Let them eat a free sandwich and if they come back once a week, you end up making an extra 400 dollars in sales for that sandwich that cost u a buck.


A lot of repairs were needed which were let slide by the previous ownership. So I fixed them which helped to increase sales.

Subway.com has a list of subway's for sale. Some areas have been built up long ago and the franchisee's are ready to move on. If every subway is new near you then the only ones for sale are the ones with bad locations. Most places in the USA are built out, and are not building new Subways.


The previous owner was a motivated seller ( divorce ). He charged what the busy store did in profits * 4. The slow store he threw in for free basically, as it made no money.


I do not necessarily recommend Subway due to the corporate structure. It is still privately owned by 1 guy, who does as he pleases more or less. He is a smart guy. But he contracted out his inspection and development to local area managers. The local guys oversee 100-300 stores, and are next to unaccountable. So if you have a good local guy it works great, but some suck. I alas got a sucky one though I did not know it at the time.