How Much to Franchise a Subway
Before you start any type of business, it’s crucial that you have an accurate estimate of how much the process costs and what to expect. Over the past two decades, many entrepreneurs have started a Subway franchise restaurant, which provides numerous potential advantages. When you wish to create a Subway franchise, there are different types of expenses that you’ll pay, which include everything from the initial franchise fee to ongoing expenses.
What Does It Mean to Franchise a Restaurant?
Owning a franchise restaurant differs from standard restaurant ownership. This business concept involves an investor buying the right to effectively use the restaurant’s name, branding, business model, and trademark from the restaurant owner. The owner is referred to as the franchisor. You’ll be a franchisee.
This option is beneficial for franchisees and franchisors alike. For example, independent owners are able to garner brand recognition for the restaurants they open. As for restaurant brands, they’re able to expand quickly without doing much of the work themselves. By paying monthly fees and an initial investment, you’ll gain access to advantages like:
- Real estate experience
- Sales and marketing support
- Comprehensive recipe database
- Supplier relationships and contracts
- Training opportunities
- Equipment
- Quality control
- Business coaching
Keep in mind that you must stick to Subway’s guidelines when managing your restaurant, which means that you’ll be tasked with using all the same branding and serving a similar menu.
Costs of Franchising a Subway
When you’re trying to franchise a Subway, there are numerous costs that you must take into account. Make sure you include all these expenses in your budget.
Initial Franchise Fee
The up-front franchise fee is an expense that you pay to Subway in order to run a restaurant with its branding. While this fee can vary, most people pay about $15,000, which is well below the standard franchise fee. For example, the franchise fee for Burger King is $50,000. For Dunkin Donuts, the franchise fee is anywhere from $40,000 to $90,000.
Marketing Fee
When you franchise a Subway, you’ll also need to pay a marketing fee that amounts to 4.5% of your gross sales. This fee is required by Subway to assist them in paying for their international ad campaigns. These campaigns will bring people into your franchise, so you can consider it an investment.
Royalty Fee
Along with the initial fee, you’ll also pay a royalty fee that adds up to 8% of the gross sales your restaurant brings in. This fee needs to be paid on a weekly basis. Once paid, it will cover some of the services provided by Subway as well as the expenses associated with using Subway’s trademark. The royalty fee is right between the industry standard of 4-12%.
Leasehold Improvement Costs
When opening a Subway, be prepared to pay a sum to cover leasehold improvements. The costs that you pay depend on the size of the interior space, the location your restaurant is in, and Subway’s layout and design requirements. These types of improvements can involve installing new ovens or display cases. They might also include new lighting, walls, or flooring. While the total costs can vary, you might pay anywhere from $40,000 to $200,000 to get your Subway franchise up and running.
Operational Expenses
These expenses involve the costs you pay to run the restaurant once it opens. These costs include wages, rent, utilities, advertising, and insurance. Operating expenses largely depend on the number of people you hire and your restaurant’s location. Your operational expenses should run from $7,500 to $15,000 when you add them up.
Inventory Costs
As a Subway franchise owner, you’ll need to buy food and supplies from vendors that have been approved by Subway. The amount of money that you spend to acquire these items varies depending on the food you serve and how large your restaurant is. Your inventory costs can run you anywhere from $4,400 to $6,050 per month.
How to Franchise a Subway
Even if you have the money you need to franchise a Subway, there are still some requirements that you must meet to qualify.
Financial Requirements
First, you’ll need to have a minimum net worth of around $80,000 and liquid capital of $40,000. The reason that these requirements are put in place is to ensure that you can cover the basic startup costs and initial investment.
This requirement is on the lower end. For example, franchising a McDonald’s restaurant requires $500,000 in liquid capital. Owning a Starbucks franchise requires a net worth of at least $700,000.
Consider Your Experience
Like most franchisors, Subway requires franchisees to have at least some experience when it comes to restaurants, business, or franchising. If you’ve ever owned a business before now, you’ll have the experience Subway is looking for in franchisees.
Because of how challenging it is to manage a successful restaurant, experience is helpful to avoid the most common pitfalls that occur. To meet the requirement, you don’t personally need this level of experience. If you have an investment partner who has a minority stake in the franchise, their experience in a relevant industry will likely allow you to qualify.
Submit Your Application
If you meet the requirements mentioned above, you can start the application process. This application should be sent directly to Subway. It will need to include extensive details about your experience, background, and financial situation. You’ll be tasked with paying the franchise fee at this time. Once your application is officially accepted, there are several things you must do before you can go forward with opening your restaurant.
Find the Right Location
After you finish your training, it’s time to find the right location for your Subway restaurant. During this process, you’ll work alongside a Subway Development Agent who will give you support in choosing the best location for the type of restaurant that you would like to run.
The development agent will be directly responsible for managing the growth of numerous Subway franchises in a geographic region. Before you finalize your choice of location, you’ll need to buy a property or obtain a lease.
Take Training
All Subway franchisees are expected to complete a training program that covers every facet of managing a Subway restaurant. Along with classroom training, you’ll also receive on-the-job training that gives you experience with management, food prep, and customer service.
The Subway training program is a core aspect of owning a Subway franchise. The training programs mainly occur in Milford, CT at Subway’s headquarters. However, Subway maintains 12 worldwide training centers.
This training program lasts for two weeks. The corporate team at Subway is required to spend at least 70 hours with new franchisees before, during, and after the restaurant has opened. All Subway stores are given a training station that provides employees with additional instruction even after the training program is over. Every employee gets a unique password and username to view the courses they are required to complete.
The primary advantage of taking this training program is that you and your employees will gain the skills necessary to manage a successful restaurant that grows with each passing year. During the course, you’ll learn more about the brand’s policies, procedures, and values.
Keep in mind that this program isn’t entirely rigid. Elements of the program can be tailored to meet the specific goals and needs that your franchise has. By gaining a more personalized experience, you’ll receive relevant training that can be immediately applied to your restaurant once it opens.
Complete Final Steps
There are still some final steps that you should take before you open your restaurant. For example, make sure that you lease or buy all the important supplies and equipment that you will need to run your restaurant. This equipment includes furniture, ovens, refrigerators, signage, fixtures, and other kitchen appliances like slicers and ovens.
Once you have the necessary supplies, you can open your restaurant. In the weeks before and after your grand opening, you’ll be required to hire and train staff members, promote your restaurant, and order food.
One of the most important steps to take in this phase is to be sure that all licenses are in place and that all inspections have taken place. You’ll need to procure documents like a Certificate of Occupancy, Food Service License, Resale License, buidling and employee health permits, and many others. Depending on your municipal regulations, you may need a sign permit and a music license.
You may need to make an appointment with the local health department so that they can approve the facility before you open your doors. You will usually need to have all changes that you make to the property approved by the city you’re operating in as well.
After your Subway location is open, Subway will provide support to your restaurant, which includes everything from vendors to marketing materials. You’ll also receive visits from various consultants to help you measure your results and make additional improvements.
Franchising a Subway restaurant takes time and money. However, it can prove highly rewarding if you’re interested in starting and growing a restaurant. Since Subway has relatively low franchise fees and net worth requirements, franchising a Subway is feasible for first-time owners. Franchising a Subway is also fairly accessible for a first-time restauranteur since you’ll receive a thorough education about how to run an effective Subway with the training program.
Here at ABC Biz Loans, we provide prospective business owners with a suite of loans and financing options that can be used to cover many business expenses. If you’re just getting started and would like to franchise a Subway, we are a franchise financing lender. Our business offers several financing methods for franchisees, which include SBA loans, home equity loans, and unsecured business loans. Contact us today for more information.
