How Much Does a McDonald’s Franchise Cost?

Introduction
In 1954, Ray Kroc made food-service history by becoming the very first franchisee of a hamburger restaurant operation started by Mac and Dick McDonald of San Bernardino, California.  One year later, Kroc opened his first restaurant in suburban Chicago.  A mere four years after that, the city could boast a hundred McDonald’s.  The chain has gone on to become the most successful fast-food franchise operation ever.  In January 2007, the company reportedly had more than 30,000 locations in 119 countries worldwide.  Its largest location in Beijing, China, can seat 700 customers at a time.  McDonald’s Corporation exemplifies its success in the company’s motto, “Quality, Service, Cleanliness and Value.”  No matter where in the world you come across a McDonald’s, you know that the items on its menu will be of reliable and consistent quality, its restrooms will be clean, and its employees will be friendly.

Options
Unlike other fast-food businesses, most of the McDonald’s restaurants you see actually occupy a company-owned building.  In many cases, the corporation has purchased the land and paid to put up the building, retaining title to both.  Then they lease the facility to the franchisee on a monthly basis, thereby exhibiting a bit more control over the operation and enjoying additional income.  While it is certainly possible to open a brand-new McDonald’s—and one of the deciding factors in choosing a franchisee involves the company taking a close look at the location you have selected—far more people have become involved by buying an existing location.  For new locations, the company asks for a 40 percent down payment from the franchisee, while purchasing an existing store requires only 25 percent down.

Raw Numbers
McDonald’s has set some guidelines in order to allow people to own and operate one of their hamburger shops.  Individuals must have cash-on-hand in a minimum amount of $250,000 to simply begin the process of applying for a franchise.  The actual franchise fee is $45,000, which entitles the owner to a 20-year agreement with the corporate entity.  After that, the renewal fee is an additional $45,000.  McDonald’s assesses an annual royalty fee on each store’s sales that starts at 12.5 percent, but there is no additional advertising fee.  A franchisee can expect to make a total initial investment of between $655,000 and $1.2 million, depending upon the style and square footage of the building, the inclusion of a drive-through, what sort of equipment is installed, and whether or not a play area is part of the design.

Multiple Locations
After running a single McDonald’s, it is not unusual to see owners expand and open up additional stores.  By consolidating multiple-store operations under a single franchise umbrella, the cost of running five restaurants is far less than five times the cost of one.  One of the ways the company ensures consistent quality is by requiring its franchisees to purchase food and other inventory items only from authorized dealers.  In return, the massive buying power of all the McDonald’s stores within a particular region provides for some excellent volume discounts.  Another way to achieve financial success as a franchisee is to develop multiple locations over the years and then sell off a store or two to someone else who wants to get into the business.

Franchise Benefits
Most restaurant people recognize the high level of training McDonald’s offers to its franchisees.  World-famous Hamburger University is the place where owner/operators learn everything from hiring practices and marketing skills to the best way to keep a deep fryer from boiling over.  The company does not provide financial assistance to prospective franchisees—except for a couple of minority-incentive plans—and will not allow anyone to buy a store unless they plan to stay involved with day-to-day operations, but the fact that more than 27 million people visit a McDonald’s every day shows that this is a fairly recession-proof business

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• April 19, 2012
• How Much Does a McDonald’s Franchise Cost?
• 2 Comments