With more than 24,000 franchised restaurants in the U.S and more than 17,000 international ones, Subway is one of the Fast-Food Industry leading brands. This company’s franchises have a relatively low starting cost, and because of that, they are available even to investors who don’t have a huge start-up investing budget.
This company started business operations in 1965, and since 1974 they started with franchising. For all those entrepreneurs who wish to invest money in this type of business, we make this in-depth analysis of Subway franchise cost, fees, and profit that these fast-food restaurants can deliver to their owners.
How Much Does The Subway Franchise Cost
The estimated total investment cost to start a Subway franchise goes between $167,500 and $476,900 including an Initial Fee of $15,000 and all other starting expenses before opening day.
Will be Subway franchise starting cost on the lower or higher-end depends primarily on how much will be the expenses related to the necessary leasehold improvements of the chosen restaurant premise.
For investors who want to reduce Subway’s starting costs to a minimum, the best option will be to buy an existing franchise unit. By purchasing an already established restaurant, the investor will possess a turnkey business that can start to deliver a profit immediately after the closed deal with the former owner.
List of Subway franchise starting costs:
- Leasehold Improvements: $40,000 – $150,000
- Equipment, Furniture and Decors: $75,000 – $113,000
- Working Capital (first 3 months): $12,000 – $26,000
- Initial Franchise Fee: $15,000
- Freight Charges: $3,000 – $10,000
- Real Property : $2,000 – 5,000 – cost of deposit for 2 months
- Grand Opening Advertising: $2,000 – $3,000
- Initial Training Cost: $2,500 – $3,500
- Installing Security Systems: $2,500
- Outside Signage Package: $1,600 – $4,000
- Legal and Accounting Fees: $1,000 – $2,000
- Insurance: $1,200 – $2,000
- Supplies: $1,000
- All other expenses: $4,000 – $6,000
- Estimated Total Investment: $167,500 to $476,900
This franchisor offers in-house financing for all starting costs. The main financial requirements that franchisee applicants must meet are a Net Worth of a minimum of $80,000 and owning Liquid Assets of a minimum of $30,000.
Subway Franchise Fees
The Subway franchisees are obligated to pay the one-time Initial Fee of $15,000 and ongoing franchisor royalties, which cost is 12.5% of the restaurant’s Gross Sales. The Royalty Fee is 8%, and Ad Fund Fee is 4.5% of the Gross Sales, and franchisees must pay them on a weekly basis.
Although the Subway franchise starting cost can be considered low, their ongoing fees are one of the highest in the Food Industry. So all potential investors in this franchising concept must be aware that 12.5% of their franchised restaurant’s income will go for the franchisor fees.
High royalties are the most significant disadvantage of starting a Subway franchise because ongoing fees will take a few percent of the Profit Margin. But, in the end, how profitable this restaurant is will depend on the manager and his business skills.
These high ongoing fees will not burden overall business profitability only if the owner/manager reduces all other operating costs to the minimum possible.
List of Subway franchise fees:
- Initial Fee: $15,000 – one-time cost
- Royalty Fee: 8% of the Gross Sales – an ongoing cost
- Ad Fund Fee: 4.5% of the Gross Sales – an ongoing cost
- Insurance Fee: $1,000 – $5,000 per year
- All other monthly fees: approximately $500 per month
Subway participates in the VetFran program, so they give a 50% discount off the Initial Franchise Fee to the Veterans of the U.S Army Forces, which means that the Initial Fee cost will be for this group of investors only $7,500.
Subway Franchise Profit
The Subway franchises, on average, make a Gross Sales of $400,000 with a Profit Margin that is between 10% to 15%, which means that the owner can expect to make an annual profit somewhere between $40,000 to $60,000.
This company’s Franchise Disclosure Document hasn’t incorporated information about their franchised restaurant’s annual Gross Revenue, so we collected data from the Community Startup Nation website. On these community pages, real franchisees give first-hand insight about Subway franchise profit that they make.
The main burden for the profitability of the Subway franchise is ongoing royalties that are all combined 12.5% of the Gross Sales. So the potential investor must be acquainted with that cost and that these franchisor fees will have a significant reflection on the annual profit.
But, If the franchisee has a great location that is not oversaturated with this and similar brand franchises, then it is possible to make a lot more than $400,000 Gross Sales per year.
Also, some franchisees have managed to make a more than 20% of the Profit Margin. However, they say that this high profitability is possible only if the owner every day on the site and looks out at every unnecessary operational expense.
The investor must be aware that the site’s rent cost will also significantly impact potential profit. Subways franchises usually operate in 300 to 2,000 square feet, so franchisees can expect to pay a landlord from $1,000 to $6,000 per month.
So the best option will be to start in the smaller space, and in that way, reduce the cost of rent and the employees. Also, one of the wiser options is to find and try to purchase an existing restaurant; in this way, investors will get first-hand insight from the seller franchisee about their Subway franchise profit.
Company Overview
Subway founder is late Fred DeLuca, who opened the first submarine sandwich restaurant in 1965 in Connecticut. This brand started with franchising operations in 1974; today, they have grown to more than 41,000 franchise units.
Their locations are almost 50/50, divided into ones that are U.S.-based and those international. This company is the largest franchisor globally; for comparison, we can mention that Mcdonald’s has approximately 33,000 franchises worldwide, and this says a lot about how much this brand is enormous.
Many investors opt to start these restaurants because Subway’s franchise cost is an absolute bargain compared to other well-known brands franchising offers. So it is no wonder that customers can find this company’s outlets in almost every corner of the world.
Today these franchised restaurants operate in more than 100 countries, and they are especially popular among Canadian and U.K. investors. In Canada is today more than 3,200 and in the United Kingdom more than 2,300 Subway franchises.
As we mentioned before, lower starting cost is a significant advantage, but Subway’s ongoing Royalty Fee of 8% will be a high cost for the owners. Mcdonald’s franchisees pay only 4% of this fee, and other similar companies also have more affordable royalties than this franchisor.
So, potential franchisee applicants must evaluate the pros and cons of Subway before the final decision. This company franchise will be the ideal option for hard-working rookie entrepreneurs who want to operate under the framework of a well-known brand with an affordable starting cost and proven business concept.
Summary
The Subway franchised restaurants don’t deliver a high profit, the franchise owner can expect a return of investment after 3-5 years. Also, the potential investors must be aware that many franchisees of this brand usually operate in the same territory and target the same customers.
Because of all said, we think that an investor, before a final decision, must do a comprehensive research of his market area. If there is a lack of similar businesses on the desired territory, owning this restaurant can be one of the better choices. However, if the market area is oversaturated with these franchises already, it is worth searching for a business alternative.