How Much Does It Cost to Start a Fast Food Franchise?
Fast food franchises can be big money makers, but they require significant upfront and ongoing expenses to operate. Some companies require you to be a millionaire just to get in the door, although others are less stringent.
Fast food chains generally set minimum net worth and/or minimum liquid assets thresholds for potential franchisees. Minimum net worth requirements can range from less than $100,000 to $1.5 million or more. Would-be entrepreneurs who do not meet those minimums are not even considered.
In addition, franchisees pay an initial franchise fee that usually ranges anywhere from $10,000 to $50,000; ongoing service or royalty fees that usually range between 3-8% of gross monthly sales; and advertising fees.
To give you a better idea of startup and ongoing costs, we’ve compiled the requirements and fees for some of the most popular fast food franchises. You’ll see that there’s a wide range in cost among various chains. Keep in mind that these are just guidelines and they only apply to restaurants in the United States.
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McDonalds: $1-$2 million or more
Most owners and operators start by buying an existing restaurant either from the company itself or another owner, rather than buying a new restaurant. The financial requirements below are strictly for buying an existing restaurant.
- Minimum liquid assets: $500,000 in most cases, although they can be lower rural or urban areas
- Initial down payment: 25% of the total cost, with additional financing spanning more more than seven years (40% for new restaurants)
- Ongoing service fees: 4% of monthly sales, as well as a monthly “rent” fee that is also based on a percentage of monthly sales
One of the least expensive franchises to start, Subway offers an equipment leasing program and leverages its relationship with lenders to help franchisees secure financing.
- Initial franchise fee: $15,000
- Royalties: 8% of gross weekly sales, minus sales tax
- Advertising fees: 4.5% of weekly gross sales, minus sales tax
Pizza Hut: $295,000-$422,000
In addition to the information below, Pizza Hut’s website offers a very detailed breakdown of fees and expenses required to open a franchise, including costs for things like inventory, computer equipment and building improvements. Click here to view the complete list.
- Minimum net worth: $700,000
- Minimum liquid assets: $350,000
- Initial franchise fee: $25,000
- Royalties: 6% of gross monthly sales
- National advertising fees: 2.5-3% of gross monthly sales
Wendy’s: $2-$3.5 million
Wendy’s fees are some of the highest among leading fast food chains, and the vetting process for franchisees is stringent. The company is interested in potential franchisees who plan to open multiple stores, not just one, either through acquiring existing restaurants or building new ones. The company prefers entrepreneurs with prior restaurant experience.
- Minimum net worth: $5 million for new multi-unit franchisees or franchise groups
- Minimum liquid assets: $2 million
- Franchise fee: $40,000 for a 20-year term
- Royalties: 4% of gross sales
- National advertising fees: 3.5% of gross sales
- Local advertising fees: 0.5% of gross sales
- Application fee: $5,000
- Background check fee: $325 per person
Burger King: $1.2-$2.2 million
In addition to growing its traditional restaurant base, Burger King actively growing its presence in non-traditional locations such as airports, travel plazas, colleges and universities, gas stations, convenience stores and malls. The company is also seeking to increase the number of minority-owned franchises.
- Minimum net worth: $1.5 million
- Minimum liquid assets: $500,000
- Franchise fee: $50,000 for a 20-year term
- Royalties: 4.5% of monthly gross sales
Taco Bell is actively expanding. In 2013, the company announced a 10-year growth plan to add 2,000 restaurant franchises nationwide.
- Minimum net worth: $1.5 million
- Minimum liquid assets: $750,000
- Initial franchise fee: $45,000
- Royalties: 5.5% of gross sales
- Advertising fees: 4.25% of gross sales