HOW MUCH MONEY DO YOU NEED TO OPEN A FRANCHISE RESTAURANT?
While this is a common question, there are initial ingredients to consider in our recipe for how to start a franchise restaurant before getting to the dollar figures.
The first ingredient is what type of restaurant you’re opening. A Quick-Service Restaurant (Fast Casual) franchise like a Nation’s Giant Hamburger requires a different approach than a Fast-Casual restaurant franchise such as a Café Mexicali. These differ from a full-service restaurant like Perkins® or a coffee franchise like Just Love Coffee Cafe.
Each of these restaurant types will also have a different approach to starting a franchise restaurant because they each require a different type of build-out.
- You’ll need to approach your location based on the target market, which can differ slightly depending on the restaurant type.
- Once your site is secured, your kitchen equipment and dining setup must be planned during build-out.
Your restaurant’s concept can also determine the type and depth of your menu, which informs your inventory and supply chain levels.
These decisions will factor into how much capital will be required to open your franchise restaurant.
According to Business Insider, opening a fast-food franchise restaurant, depending on the brand, can cost you anywhere between $36,500 and $3.7 million, with an average ongoing royalty fee between 4% and 6%.
For a fast-casual restaurant franchise, the numbers are similar. For example, the investment range is between $942,000 and $1.6 million to open a Panera Bread franchise.
If you’re interested in going the full-service restaurant route, you can expect numbers in the higher range of that average, mainly because the layout and equipment requirements are larger. One of the most popular full-service franchise restaurants, Texas Roadhouse, takes an investment range of $1.6 million to $3 million to open.
The best way to understand how to start a franchise restaurant and its associated costs is to compile your one-time costs, such as security deposits, licensing fees, building improvements, equipment purchases, furniture, and signage.
Next, consider your recurring costs:
- Food and beverage.
- Advertising and marketing.
These will be your ongoing monthly expenses. Knowing these two amounts will help you understand what comes next with developing your restaurant franchise concept.
IS FRANCHISING A RESTAURANT PROFITABLE?
The answer here is yes, or there wouldn’t be so many restaurants in business, nor would so many people be seeking information on how to start a franchise restaurant.
However, many factors play a role in any restaurant’s profitability, including:
- Food costs.
- Marketing strategy.
What are the most profitable types of restaurants? That, too, depends on the perspective.
For example, high-end restaurants are profitable because menu prices at fine dining establishments have larger markups and a large selection of alcohol, which in and of itself has a high markup value.
On the flip side, Fast Casual and fast-casual restaurants have a relaxed atmosphere that attracts a large customer base. Despite their lower-cost menus, casual eateries have moderate profit margins thanks to the number of people served.