Subway Franchise Cost: What You Need to Know
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Introduction
As the world’s largest franchise brand with over 42,000 locations globally, Subway continues to fuel dreams of entrepreneurship and independence for those looking to own their own business. However, operating any franchise – especially one known for its initial franchise fee and affordability – still requires considerable financial planning to understand costs such as franchise royalties.
Deep Dive
In this in-depth article, we’ll break down all Subway franchise costs including startup investment amounts, operational expenses, profit potential, and more to give you full transparency on the true costs of ownership. Whether simply weighing franchise ownership or analyzing potential long-term profits, this comprehensive analysis covering initial fees, royalties, and total costs will help you decide if this convenience-focused brand is the ideal fit to launch your successful franchise venture. Let’s dive deep into what it truly takes to successfully run a Subway franchise and determine if the investment suits your goals.
How Much Does a Subway franchise cost?
Upfront Fees
Some people may think you need a million dollars to start a franchise but the initial Subway franchise fee ranges from $15,000-$25,000 depending on location specifics. These non-refundable initial franchise fees cover materials like signs, decor, and initial training. Additional fees may apply for customized spaces like kiosks. However, this initial Subway franchise fee is low compared to most other fast food franchises – a draw for many interested entrepreneurs looking to open a Subway restaurant and own their own successful small business. Beyond the franchise fee, budgets must account for further substantial upfront startup costs and investments.
Location & Buildout Costs
Securing prime commercial real estate in high-traffic areas is imperative, commanding the highest costs. Expect $100,000-$250,000+ for a leased property, build-to-suit location, or purchase. In addition, tenant improvements like plumbing, electrical, flooring, signage, and interior decor amount to at least $75,000 on average. Some franchisees choose cheaper secondary locations, demanding buildouts under $50,000, though the return on investment and gross sales lessens long-term.
Equipment & Furnishings
No Subway kitchen is complete without essential appliances like convection ovens ($8,000/each), bread warmers ($2,500), dough sheeter ($4,000), and blast chiller ($5,500). Refrigeration units run $12,000-$18,000 each. Factor in small wares like slicers ($2,500/set), countertop pizza warmers ($800), spatulas, and serving utensils. Create inviting decor with tables, chairs, booths, and signs – expect $15,000-$25,000 furnished. The Subway POS system costs $3,000 initial setup plus $199 in ongoing monthly franchise royalties and fees.
Opening Inventory & Supplies
Stocking the refrigerator and storage areas requires around $15,000 upfront for breads, cold cuts, sauces, chips, drinks, and other non-perishables. An additional $5,000 covers necessities like janitorial items, paper goods, uniforms, and aprons. Cash registers and credit card terminals are another $3,000 investment. Don’t forget $4,000 to stock the pantry!
Professional Services
Legal counsel, accountants, and consultants make the process smoother. Attorney fees hover around $5,000 for lease/contract reviews. Pay $2,500 for an accountant to handle bookkeeping, payroll setup, and taxes. Web designers charge $1,500 to build your online presence. Inspections may demand minor improvements costing thousands more.
Additional Business Expenses
The budget for basic signage starts at $2,500. Additionally, reserve between $10,000-$20,000 in contingency funds to cover unexpected costs during startup/grand opening. Purchase computers, phones, and necessary software licenses for around $5,000. $7,500 covers point-of-sale system hardware and integration services. With all major prerequisites addressed, the total initial Subway franchise investment ranges between $250,000-$400,000 depending on your area.
Expanding into Non Traditional Locations
While the standard strip mall or food court model yields proven success, Subway has embraced exploring non-traditional locations to broaden its franchise offerings. For entrepreneurs seeking flexible real estate options, these emerging formats deserve consideration:
College Campuses: Joint ventures licensing the Subway name within busy campus student unions or dining halls guarantee a built-in customer base.
Airports & Travel Plazas: Partnerships with terminal operators place stores within high foot-traffic transportation hubs for captive audiences.
Hospitals & Healthcare: Clinic and hospital cafeterias tap staff and patient demographics throughout dayparts.
Office Parks: On-site locations for office complexes ensure lunchtime patronage from local employee populations.
Gas Stations: Co-branding with convenience stores places Subway counters inside gas stations capturing an impulsive customer segment.
Hotels: Lobbies and room service kiosks appeal to hotel guests and visitors throughout operating hours.
Stadiums & Arenas: Permanent stands or roaming food carts serve ravenous sports and concert fans.
Sometimes real estate rates are often higher, these captive demographic venues assure visibility and footfall. Operators must maximize speed and quality for customers on the go. However non-traditional sites offer smaller footprints, longer hours potential, and revenue streams independent of local shopping trends. Franchisees seeking variety should explore opportunities in these emerging formats.
Financing Your Subway Franchise
With total upfront costs reaching six figures, securing comprehensive financing is integral to entrepreneurial attainability for potential Subway franchise owners. Subway offers referral services to connect candidates with lender networks that cater to restaurant franchisees. However, independent research uncovers additional financial package options:
SBA Loans Check
As an eligible veteran or socially/economically disadvantaged entrepreneur, the SBA can help finance up to 90% of qualifying startup expenses like franchise fees and buildout costs through loans of $150,000-$1Million at low, fixed interest rates over 25 years or more. Read more here.
Equipment Financing Check
Individual pieces of equipment necessary for operations totaling $25,000 or greater, such as appliances, point-of-sale systems and décor installations, may qualify for low interest financing programs paid off within 3-5 years to lower monthly loan obligations. Read more here.
Business Line of Credit
Revolving lines of credit from $50,000 up to $1M+ allow newly minted franchise owners to responsibly borrow against an approved credit line. Only pay for what you take out. Read more here.
Commercial Bank Loans
Many regional and national commercial banks offer competitive variable-rate term loans with 15-year amortization periods that make their franchising small business loans appealing if personal and company finances demonstrate sound credit and tax histories.
Franchisee Loans
Specialized alternative lenders in the restaurant investment sector provide packaged financing strictly for approved franchise candidates, with some interest-only programs for the initial 2 years at average rates between 8-15% ultimately depending on personal credit risk evaluations.
Operations Expenses & Ongoing Costs
While startup expenses fade, operational costs remain ongoing as you run the business. Major monthly fees include:*
– Rent: 10-15% of sales (avg. $7,500-$12,000/mo)
– Royalties: 5% of net sales to Subway corporate
– Advertising Fee: 4.5% of net sales for co-op ads
– Payroll: 18-25% of sales for 2-4 employees
– Utilities: $2,000-$3,500/mo avg. for electricity, gas, water, trash, internet, phone
– Food/Supplies: 30-35% of sales ($9,000-$12,000/mo)
– Repairs/Maintenance: 1-2% of sales for routine fixes
– Accounting/Bookkeeping: $1,200-$1,500/mo
– Insurance: $1,000-$2,000/mo for general liability, property, workers’ comp
– POS Fees: $199/mo + transaction charges
Total operational costs equal 45-55% of monthly sales on average. Gaining scale by serving 200-300 customers daily helps maximize 6-10% monthly profit margins. Future expenses often include renovations every 7-10 years and technology upgrades. However, centralized purchasing lowers many food and supply costs compared to independent restaurants.
Costs may vary*
The Financial Reality of Subway Ownership
Given the investment required, it’s important to understand realistic profit potential. Here’s a detailed three-year financial model analyzing a typical Subway franchise store’s income statement, initial franchise fee and cash flow:
Year 1:
Sales: $400,000 (200 customers/day x $5 average, expected in the ranges for Subway restaurants)
Expenses: $280,000 (including $40,000 in annual debt payments for financing the initial franchise fee, startup costs, and ongoing costs involved in operations)
Profit: $20,000
Year 2:
Sales: $450,000 (5% projected annual growth in gross sales as the new franchise gains customers and market share)
Expenses: $300,000 (including franchise royalties and advertising fees owed to the corporate headquarters, payroll, and other operational expenses)
Profit: $40,000
Year 3:
Sales: $500,000 (continued 5% estimated annual growth)
Expenses: $320,000 (accounting for typical increases in supply costs, utilities, and repairs for the Subway franchise unit)
Profit: $60,000
As illustrated, cash flow and profit margins usually improve for most new franchisees each year as the initial startup expenses recede and sales climb 5-10% annually through strategic marketing, promotions, and opening new dayparts like breakfast/dinner. Most Subway franchises are projected to reach profitability and break even within the targeted 18-month period according to their disclosure documents and past average performance.
Multi-unit owners earn anywhere from $150,000 to $250,000 annually by overseeing 2-4 food franchise locations under their control. Ultimately, consistent execution of operations and food quality is vital to ongoing success within this competitive quick-service restaurant market.
Pros and Cons of Subway Franchises
Pros:
- Recognized brand with an established loyal customer base
- Low initial franchise fee compared to other chains
- Standardized systems make operations simple to implement
- The franchisor provides extensive training and ongoing support
- Potential for growth through additional location development
Cons:
- High total startup costs for real estate, equipment, and inventory
- Markets may become saturated, increasing local competition
- Strict design and product standards limit customization
- Royalty fees and mandatory advertising eat into profit margins
- Reliance on foot traffic necessitates prime retail real estate
Purchasing An Existing Subway Restaurant
Buying an Existing Subway Franchise
For entrepreneurs seeking a faster path to small business ownership, buying an established Subway franchise from an existing owner offers certain advantages over launching a new location. However, it’s important for potential buyers to perform extensive due diligence when evaluating these opportunities.
Locating Available Franchises
Subway periodically lists existing franchises for sale on its website and digital notice boards for interested buyers. Speaking with your local development agent can also connect you with current owners ready to sell. Be sure to obtain the Restaurant Facility Report detailing full sales and profit history.
Evaluating the Business
Carefully analyze provided financials for at least 2 years to gauge performance trends. Interview current staff and conduct site visits at peak hours to assess customer traffic. Also request disclosure of any outstanding debt obligations. Hire professionals to audit books and inspect the property.
Negotiating the Purchase
Expect buy-in costs ranging $150,000-$300,000 depending on location finances. Terms are negotiable, so don’t be afraid to make a counteroffer if pricing seems inflated. Ensure franchise rights are transferable and confirm lease assignment. You’ll also need Subway approval as the new franchisee.
Securing Financing
Even with potential cash flow, banks usually require at least 20% down from buyers. Present solid documentation of need and ability to sustain past successes. Equipment leasing and SBA loans also apply. Build financing approvals into contractual contingencies.
Key Takeaways on Subway Franchise Ownership
Total initial investment costs to launch a Subway franchise range between $250,000-$400,000 depending on the location attributes and specific costs involved
Thorough financing packages from multiple approved sources are necessary to cover all prerequisite startup expenses and franchise fee investments
Revenues for a new Subway franchise are projected to hit $400,000-$500,000 annually by the second and third year of operations
Approximately 45-55% of each sale at the Subway franchise covers ongoing monthly operational expenses like rent, royalties, payroll, food/supply costs, and utility bills
According to Subway’s franchise disclosure documents, most single-unit Subway franchise owners can expect to reach profitability and positive cash flow within the targeted 18-month period
Multi-unit Subway franchisee owners who oversee 2-4 locations under their portfolio control often see their profitable returns scale up to $150,000-$250,000 annually
By fully understanding all associated costs from investment to long-term operations and financial implications, potential franchisees can determine readiness to take on opportunities within the Subway system. With the right planning and financing in place, this globally established brand offers a stable, affordable path into small business ownership and independence for qualified candidates. The choice lies in weighing potential profits against substantial initial investment. Consider all factors carefully before pursuing this rewarding franchise opportunity.
Our team at Upwise Capital is here to assist you with every step of the way to secure whatever funding is needed to help your business grow. If you have any questions regarding how subway franchise financing works, please call our team at 77-55-UPWISE or email [email protected]. You can also apply online for equipment financing, so you can get back to work and running your business.
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