Who doesn’t know McDonald’s? The company is so popular that it commands brand loyalty among buyers, kids and adults alike. Many consider McDonald’s as a source of their comfort foods.
Today, McDonald’s has a presence in 36,000 locations worldwide in more than a hundred countries. That is how in-demand and profitable the food chain is.
In the USA alone there are over 3,000 owners of the franchise. Owning a McDonald’s franchise is a definite business goal.
Want to own a McDonald’s restaurant? Read on to know about McDonald’s franchise costs and how you can be an owner of a McDonald’s restaurant.
McDonald’s Franchise Average Cost
The initial fee for the McDonald’s franchise is $45,000 while the ongoing expenses are the following:
- Service Fee – The current rate is 4% based on the gross sales. Gross sales include all revenues from sales but exclude sales tax. It is payable monthly on the 10th day of the next month.
- Rent – The rates are from 8.5% to 15%, or more, depending on the total acquisition and development costs of the company. The amount is paid only if the gross sales exceed the monthly base sales figure.
The total initial McDonald’s franchise amount is from $1,008,000 to $2,214,080.
The initial franchise fee is payment for joining the McDonald’s franchise system. The amount is paid a lump sum to the company.
The amount is for the access to McDonald’s tried and tested recipes and business plan. It is a payment for the McDonald’s formula, one with proven successful results.
When paying for a McDonald’s franchise, you get to use to use the operating system and trademark of by the company.
Other Costs to Consider
The following are the other necessary items to consider:
- Real Estate and Building Lease – The franchise agreements specify an Operating Lease. The franchisor makes the decisions regarding store locations. Site evaluation, acquisition of the property and construction of the building are all done by the franchisor.
All McDonald’s stores pay a monthly base rate, and the amount depends on the investment of the company in acquiring and developing the property.
For the initial investment, prepare the rent for the first 3 months.
- Advertising and Promotion – The amount is not less than 4% of the gross sales and is spent during each calendar year. Franchisees can join in on the local advertising cooperatives and national advertising fund. The contribution rate for which varies. For new restaurants, the company strongly encourages Grand Opening promotions.
- Audit/Inspection– The amount due is the cost of the audit and must be settled upon billing. The fee is payable only if the audit shows an understatement of at least 2% of gross sales.
- Software License and Annual Maintenance– The following are various fees that are paid to the company. Some are due to the company while others are due to affiliated companies or third-party suppliers.
The annual charges, except for the last one, can be paid in full during August by check or semi-annually in August and November by bank draft:
|TYPE OF FEE
|POS Release Fee
|Restaurant File Maintenance (RFM) Fee
|R2D2 Software Maintenance Fee
|NP Software Fee
|Integrated Cashless System Fee
|Microsoft Subscription License
|Endpoint Security Licenses and Managed Services
$200 for McD US
$170 for McD Corp
|Restaurant System Management (RSM)
|Restaurant Integrated Data Movement (RIDM)
|Identity Management Fee
|PIC Compliance/Security Fee
|Restaurant Support Fee
|ISP Migration Fee
|$900 for McD US
$390 for McD US
$660 for McD Corp
|Store Mail Fee
This Store Mail Fee is the payment for the use of the us.stores.mcd.com domain. The amount is payable annually within 30 days of billing.
- Signs, Seating, Equipment, and Décor – From $700,000 to $1,500,000 payable to various vendors.
- Opening Inventory – From $20,000 to $35,000 payable to various vendors.
- Miscellaneous Opening Expenses – $40,000 to $50,000 payable to various vendors as well as to utility companies for the utility expenses.
- Travel and Living Expenses While Travelling – From $3,000 to $35,000 for official travels and other related expenses.
- Additional Funds – The funds for 3 months is from $200,000 to $320,000 for payroll payments and other operating expenses.
There are numerous restaurants open for franchising. Better pick one that will ensure a greater chance of successful operations.
In choosing a restaurant franchise, be sure that the answer to the following questions is a resounding yes:
- Is there an increasing demand for the products?
- Does the franchise have a high potential for earning?
- Is there a higher chance for a short Return on Investment period?
- Will I be backed by a proven support system from the franchisor?
With McDonald’s and its proven franchise system, you have the chance to become a successful restaurant owner.
McDonald’s Franchise Cost Factors
The following are cost factors of a franchise:
- Brand Recognition – McDonald’s is an internationally-known brand. The company made it to many of the lists of Forbes for 2017. It ranked 215th in the Forbes Global 2000 Top Regarded Companies, 9th among the World’s Most Valuable Brands, and 72nd in America’s Top Public Companies.
The more extensive the brand recognition is, the more expensive the franchise costs are.
- Brand Profitability – According to the Business Insider, an average McDonald’s restaurant generates $2.5 million in sales annually. The company’s 2016 Financial Statements showed a net income of $4.7 Billion, that’s 3% higher than the net income in 2015.
- Return on Investment (ROI) – McDonald’s franchised stores make-up almost 85% of the total 36,899 as of 2016. This huge number of franchised stores is an indication of how good an investment the franchise is and of a better return on investment for the franchisee.
Investments with better ROIs cost more than those with longer periods.
- Proven Systems – Franchises with proven operating and support systems not only during the start but all throughout the franchised stores’ operations have more expensive franchise costs.
The company is well-known for their extensive training requirements and for their Hamburger University, proofs of how serious they are in how their stores are being operated and managed.
McDonald’s is considered a top franchising company and their proven systems are factors to that achievement. The company is recognized by the Entrepreneur Magazine, Franchise Times Magazine, USA Today, and Black Enterprise Magazine as a top franchisor.
- Rate of Success of Franchised Stores – The higher the success rate of franchised stores, the higher the initial fees.
The steady increases in franchise sales and number of franchised stores in the past 6 years are good indicators of the success of franchised stores.
- Continuing/Ongoing fees – These are the fees that the franchisee has to pay the franchisor throughout the operations of the franchised business as part of the agreement.
McDonald’s franchisees pay 2 kinds of fees to the company. The fees indicate the firm belief of the company in the high rate of success of all their stores.
McDonald’s is an internally-known food chain with proven restaurant and support systems. The increasing number of the restaurant’s branches is a testament to its profitability and success. With these, acquiring a McDonald’s franchise is a sure business formula. Hence, the franchise costs do not come cheap.
What Else You Need to Know
Aside from purchasing a new restaurant, you can also become a McDonald’s store owner by purchasing an existing restaurant from McDonald’s or a McDonald’s owner/operator. The financing and requirements may vary.
The costs discussed above apply to a traditional McDonald’s restaurant. You can also apply for a Satellite, Small Town Oil, Small Town Retail or Business Facilities Lease types of franchise.
For more information, the company provides the Franchise Contacts on their website.
The company has very stringent procedures for accepting franchise applicants. To qualify for a franchise, you have to spend not only money but also time.
To be considered for a franchise of the company, you must have a minimum of $500,000 of non-borrowed personal resources.
The company also requires that the franchise buyer pay a minimum of 25% cash as down payment. The balance can be financed at a term not exceeding 7 years.
Though there is no available financing from the company, the franchisee is assured of the established relationship of the franchisor with several financing companies. It is said that franchise applicants enjoy the lowest lending rates in the industry.
For more details, you can visit the Acquiring a Franchise page on their site.
As an applicant, you must also attend the Hamburger University and complete the Restaurant Department Management (RDM) curriculum to be qualified to operate a McDonald’s restaurant.