How Much to Franchise a Subway: Things to Consider
Launching a Subway franchise gives you built-in support. When you start a business yourself, you need to know how to market it and get customers to buy from you. As a franchise owner, you automatically appeal to those who like the products the company makes. Subway started in 1965 and began offering franchises in 1974, which helped it grow through the modern era. Before you start the process of applying, we want to help you see how much it costs to franchise a Subway.
Subway Basics
According to Subway itself, the restaurant chain wants to help you become successful. Experienced franchise owners have the chance to open multiple branches and grow their profits. Subway looks for several things when picking new owners:
- Experience with franchises and/or restaurants
- Strong finances
- Shared core values
- Leadership skills and the ability to work with a team
To apply, you must complete the Franchise Disclosure Document and talk with the team. Subway then asks you to pick a location for your first restaurant and go through some training. It’s helpful to look at the overall costs before you apply.
Subway Franchise Costs
Opening a Subway involves more than just your franchise fee. You are also responsible for advertising your business and building a new shop. Some save money with a lease or when they take over an existing restaurant. Subway has the final say over where you open, though, and may limit your options. Your franchise fee varies from $10,000 to $15,000. It usually depends on the country where you live and your plan to open your sub shop. This is just one of the upfront costs you face.
Weekly Fees
While some food franchises charge an upfront fee along with an annual fee, Subway requires that all franchisees pay a weekly fee. This covers your royalty and advertising fees. It essentially allows you to use the Subway name and take advantage of any ad campaigns it runs. You can even run the same sales that customers see on TV in your shop and accept any coupons the company sends out, which can get people through the door.
Your weekly fees come to 12.5% of your sales. While this sounds high, you can deduct the sales tax you pay from the total amount. If you have gross sales of $10,000 per week, $8,750 stays with you. Once you deduct employee wages and operating costs, the rest of the money stays with you. Eight percent of the money you pay Subway covers your royalty fee, which gives you the right to use the brand’s name. The rest of the money covers your advertising fees.
One of the nice things about paying a weekly fee is that it helps you stay on track. With annual fees, you need to put back money every week to make a big payment at the end or the beginning of the year. If you have a few low weeks or months, finding that money can be difficult. Subway bases your fees on how much you make. When you have a low week, the amount you owe is lower.
Traditional vs. Nontraditional Franchises
If you’re still early in the process of becoming a franchisee or if you just started looking at your options, you may not know that Subway offers traditional and nontraditional franchise agreements. A traditional agreement is what most people think of first. This is for those who plan to open a restaurant that serves solely as a Subway and nothing else. You cannot sell anything in your shop except for Subway products.
A nontraditional agreement is different because it gives you the right to open a shop within an existing business. It’s a good option if you already own a gas station and want to boost your profits. Subway also allows franchisees to open shops in convenience stores, parks, airports, rest stops, and other places. You must meet the same requirements to open a shop in one of these locations as you would a standalone shop. One of the main differences between the two is the building costs.
Building Costs
One of the biggest costs associated with opening a Subway shop is the building itself. You have the choice of building a new restaurant from scratch or taking over an existing commercial space. If you want to keep costs down, consider renting a restaurant. You usually want to keep your cost at around 8% of your total revenue. If you make $200,000 a year, your rent should not come to more than $8,000 per year or $667 per month. It’s possible to lease a space for as little as $2,000 upfront.
Building a new shop will cost more. The cost of building a new restaurant averages between $150 and $750 per square foot. Subway shops usually fall closer to the low end of this estimate. You don’t need as much equipment or storage space as a larger restaurant does. Franchisees also save money on floor space since Subway shops need less room for customers. Customers usually pick up their orders or take them to go.
Building Improvements
Though opening a Subway in an existing space will cost less, any improvements you make will increase the cost. An old restaurant may not have enough room for your inventory. It usually requires a retrofit to make room for your new equipment. Buying an old building can also increase your cost if it does not meet the local codes. You need to have a city or county building inspector come out and ensure you can operate a shop out of the space. It may also require changes to the building if you plan to share the space with another business.
Equipment
Start-up costs include everything you need to open your franchise, such as equipment. Subway will not even order your equipment until you pay for it, and you must go through the company. The cost of equipment ranges from $90,000 on the low end to $180,000 on the high end, but this figure also includes furniture and decor. Equipment includes the containers used to store ingredients, the ovens needed to bake fresh bread, and the refrigeration units that keep food cold.
Restaurant furniture usually costs more than home furniture because it needs to stand up to frequent use. Most Subway shops have a small dining room with space for around 10 or more tables and twice as many chairs. The furniture is available from Subway and uses the chain’s classic green and yellow colors. You’ll also need racks to store delivery orders along with bagged chips, cups, and other items.
Total Opening Costs
Looking at the total opening costs will show you how much money you need to have on hand to open a Subway. For traditional shops, Subway puts the total amount needed at around $139,000 to more than $342,000. The cost varies based on the size of your shop, whether you buy or lease a building, and other factors. Subway often divides these expenses into those you pay before or during your grand opening.
Before Opening
Supply and inventory costs are two of the biggest fees you pay before opening. Your supplies include anything you need to run your shop, such as uniforms for your employees. The inventory Subway requires includes the things needed to serve customers, such as cups, lids, straws, and the Subway paper used to wrap sandwiches. You also need the food and ingredients on the Subway menu. This includes cookies, sandwiches, salads, soda, and chips. Subway will ensure you order the right amount for your customer base and that you know how to order more in the future. You need to stock your inventory at least one week before you open.
Around Opening
Most of the costs you pay around your opening date come from the advertising you do. Whether you open in a city with other Subways or you enter a new market, you need an ad campaign that tells customers why they should pick you. You may run an ad that shows some of the events that happen during your grand opening. Those events can include autograph sessions with a local celebrity or a contest where customers have a chance to win gift cards or other prizes.
Training Costs
Don’t forget about the training costs you pay for either. Subway will not let you open and operate one of its shops until the company feels secure you can handle the job. You have the chance to work with sandwich artists and experts who know the ins and outs of running a sub shop. Subway holds you responsible for paying any training costs. They include the money you pay to travel to the training center and your lodging. The price can climb to $5,000 or more, but many franchisees pay less.
Miscellaneous Figures
If you think you know all about the costs of becoming a Subway franchisee, don’t forget about the miscellaneous expenses. You need to pay for a security system, which the chain asks you to buy when you place your first order. This includes the cameras you use inside and outside but does not include camera monitoring, which you pay for by the month. Outside signage is another requirement. Every Subway shop must have one of the brand’s signs on the building and other signs.
Some of the other costs you pay will depend on where you open a shop. You need a business license that shows you have the legal right to open and run a business in your state. Whether you buy or lease a building, you often need to pay a deposit. Leasing a building may require an amount equal to the first and last months of rent and a security deposit. Commercial landlords may ask for a year of rent upfront. Deposits are also required for any utilities you need.
Paying for Subway Franchise Costs
During the application process, Subway asks for proof of your financial assets. It requires that you have a minimum net worth of $150,000 along with liquid assets of $100,000 or more. Liquid assets refer to cash reserves and any other assets you have on hand. This shows the company that you have enough cash to cover your overhead and operating costs. Though you may have enough money in the bank to start a Subway franchise, the chances are good you may need some help in the future. We offer franchise loans for people just like you.
What Is a Franchise Loan?
A franchise loan is a type of business loan designed for those who own or plan to own a franchise. The loans we offer for Subway franchisees help you pay for any of your expenses. Use the money to cover the franchise fee of up to $15,000, or get cash to pay your new lease or when you want to improve an old building. The funds also help you pay for your stock or inventory and new signs.
Secured vs. Unsecured Loans
Getting the funding you need is easy with both secured and unsecured loans. Secured loans ensure a bank gets its money back because it ties the loan to some type of real property, such as your home. If you default, the bank has the right to foreclose and take the property to pay off the loan. Unsecured loans are best for those with good credit because they require a credit score of 700 or higher. Franchise loans allow you to borrow up to $350,000.
Opening a Subway Franchise
Subway estimates the cost of opening one of its franchises at $229,000 to around $522,000. This amount includes your franchise fee and all other expenses. Your exact total varies based on whether you go the traditional or nontraditional route and whether you buy or lease a building. Costs can also rise when you need more licenses or permits. While opening a Subway franchise is expensive, it’s worth it for how much you can make in the coming years. Find out more about your Subway franchise financing options when you contact ABC Biz Loans today.
