Lengthy earlier than Subway was bought by the personal fairness agency Roark Capital—deal that closed April 30 with a price ticket of $9.6 billion—an an entrepreneurial member of the StartupNation neighborhood posed a query in regards to the big sandwich chain.
It was July 2006. The query to the StartupNation neighborhood discussion board was earnest and particular:
“I’m curious to know what’s the common revenue a Subway restaurant proprietor would make month-to-month? Or if you realize anybody who owns a Subway, how a lot do they make month-to-month? Or if you realize anybody who owns just a few Subway areas, how a lot do they make month-to-month?”
Inside days, members of the StartupNation neighborhood started responding to the Subway questioner and discussing the price of a Subway franchise and whether or not proudly owning one was a superb funding. Then, over the following 15+ years, they continued responding, layering questions on high of feedback on high of compliments like, properly, like a large Subway sandwich:
They mentioned and debated all the things from Subway franchise price to Subway franchise profitability to Subway guidelines, rules and non-traditional areas.
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“The Subway Publish”
The Subway Publish,” because it got here to be identified at StartupNation, grew into a number of pages through the years as scores of neighborhood members—Subway franchise house owners, Subway managers, Subway lovers, Subway haters, you title it—weighed in on the financials of proudly owning an outlet of the well-known restaurant chain.
Now, with Subway within the palms of Roark Capital after a Federal Commerce Fee assessment, StartupNation determined to revisit “The Subway Publish” and replace any data we may. We additionally needed to put Subway store possession within the context of franchising total.
However, first, what about that unique query? How a lot can you make from proudly owning a Subway franchise?
Subway Franchise Profitability
Nicely, formally, Subway Eating places, the franchise enterprise operated by Physician’s Associates, Inc., is cautious to not predict what any single Subway location may earn in gross sales or clear in earnings. If you happen to’re trying to purchase an current Subway franchise, you might be offered the precise data of revenue and loss for that particular retailer.
However a brand new location? Future revenue projections? You’ll should do your personal analysis.
In actual fact, sprinkled all through the paperwork {that a} purchaser should full when securing a franchise are phrases underlining that neither Subway nor its representatives can or ought to make any predictions or ensures about profitability.
Right here is a kind of disclaimers, for instance:
“We don’t make any representations a couple of franchisee’s future monetary efficiency or the previous monetary efficiency of company-owned or franchised shops. We additionally don’t authorize our staff or representatives to make any such representations both orally or in writing. Nevertheless, in case you are buying an current outlet, we could offer you the precise data of that outlet. If you happen to obtain another monetary efficiency data or projections of your future earnings, it’s best to report it to the franchisor’s administration. …”
Profitability Estimates from Posters
In responses to the unique put up in 2006, individuals figuring out themselves as Subway franchisees or Subway staff conversant in franchise operations offered numerous revenue estimates.
Some stated franchisees ought to anticipate to see 20% revenue margins. Tightly managed retailers can push 25% money movement, and ones with weaker operations may clear solely 15% a yr.
Meaning a location on the excessive finish of the gross sales chart may throw off $150,000 a yr or extra. A struggling Subway in a low gross sales location may clear as little as $40,000.
One poster provided this recommendation:
The final rule of thumb is that should you actually push it (work within the retailer your self, preserve meals and labor prices as little as potential, and keep on high of loss prevention) you possibly can attain a revenue margin of about 25%. So, when you have a retailer averaging $10,000 every week in gross sales, you`ll make about $10,000 a month revenue. Take into accout, this isn’t simple and most Subway house owners don`t do that properly.
A poster who recognized himself as “Subway Proprietor” was extra bullish on the chance:
I personal three Subway eating places. I don`t need to make anybody mad, however some issues posted listed below are both fallacious or deceptive. First off, I’ve been concerned with Subway for 17 years, since 1989, and it’s a good firm.
The common retailer within the US does somewhat shy of $8,000/week. So for simple spherical numbers let’s say the common retailer does $400k/yr. It’s comparatively simple to drag 20% revenue should you regulate the enterprise. I averaged 22.63% for the primary quarter this yr and I used to be in my shops a median of 10 hours or much less per week, so 20% will not be that tough. However for the next estimate, let’s use 20% common revenue.
When you’ve got a retailer that’s merely common it’s best to revenue within the ballpark of $80k/yr.
Now let’s say you have been fortunate sufficient to get a fantastic location and also you retailer does $15k/week (the realm I’m in has a number of shops that do that and far more in gross sales so it is vitally potential), properly, try to be making in extra of $150k per yr.
Now, one or two shops usually are not going to make you a multi-millionaire, however you may make a snug dwelling with out a lot of a time funding.
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Different posters pushed again, suggesting that earnings down within the $25,000-$30,000 vary have been frequent and that to make a dwelling off Subway franchising one needed to personal a number of areas. They warned that except you may construct up your personal enterprise of Subway franchises, you may simply be shopping for a job, and in some instances shopping for a low-paying job.
Changing these 2006 {dollars} to 2024 buying energy is fraught given the latest excessive inflation and the specificities of meals prices and the restaurant enterprise. However a straight conversion primarily based on common inflation would put that vary of earnings at $42,000-$225,000 in right now’s {dollars}.
So, How A lot Do Subway Franchise Homeowners Make?
So, how may we estimate right now’s Subway franchise financials via analysis of obtainable documentation? Nicely, let’s begin with discovering what we will about product sales figures:
Whereas Starbucks and McDonald’s battle for the title for the world’s largest restaurant chain primarily based on whole gross sales, Subway is true there battling for the highest spot by variety of shops (nearly 37,000 shops worldwide in 100 international locations, with about half of these in america).
On common, a typical Subway retailer will gross about $420,000 a yr, primarily based on Subway’s personal figures and trade estimates. Whereas that will sound like some huge cash, $420,000 is a small per unit income in contrast with different restaurant franchise alternatives. And Subway’s common income per retailer really decreased for a lot of the 2010s, till a turnaround in 2021-22.
So, if our working quantity is $420,000 a yr in product sales, the place does that cash go?
(Subway does boast among the many lowest begin up prices for franchised shops. However we’ll take a look at the preliminary funding, such because the franchise charge, later.)
Subway Franchise Price: Royalty Charges
Begin with the Subway franchise royalties. The royalty charge is 8% of product sales, whereas the promoting charge is 4.5% of product sales, in response to Subway’s Franchise Disclosure Doc.
Like different franchise agreements, Subway’s contains different small, recurring charges as properly, they usually’re listed in that disclosure doc. However the large charges are these two that add as much as 12.5% of product sales, and Subway is evident in its documentation about gathering these:
“Product sales” contains all gross sales of each variety comprised of your restaurant. … The royalty is payable to us and is nonrefundable. … The royalty is payable weekly and is due on or earlier than the Friday following the shut of the enterprise week which is often Tuesday. You have to submit signed types to permit us to deposit drafts in opposition to your checking account for the total quantity of the weekly accruals of royalties, promoting charges, and different quantities you’ll owe us.
Labor, Meals and Different Prices
Past these royalty charges lurk the opposite, typical prices of operating a meals franchise. You should have hire and utilities, in fact, or different bills resembling property taxes and constructing upkeep should you’re fortunate sufficient to personal the property. In case your Subway goal retailer is in a non-traditional location, you may need a concession charge as properly.
Labor prices will depend upon prevailing wages in your neighborhood, together with any state or native minimal wage, in addition to how aggressive the labor market is the place you arrange.
You’ll have to account for what number of hours you because the franchise proprietor can put in, however don’t rely in your sandwich expertise to be the distinction maker. If monetary success requires you to take too many shifts behind the counter, you may need to rethink the plan.
Meals prices are more likely to account for the largest chunk of your bills. Within the Subway franchise system, house owners should purchase from Subway-approved suppliers.
Subway cites high quality management and buying energy because the positives of this association, and a few house owners of Subway franchises contributing to “The Subway Publish” praised the system for serving to them with account well being monitoring and stock monitoring. Others, nonetheless, pleaded for extra flexibility, questioning Subway’s “eat recent” slogan and saying they may supply higher components at a fairer worth than these mandated by Subway company.
Put all these prices collectively, together with another miscellaneous bills, and you’ve got a strong image of what would come out of that common gross sales take of $420,000.
Your prices, once more, would rely largely in your location and your administration of the place. Your gross sales may even depend upon location and the quantity of competitors, together with from extra areas within the Subway household.
Franchisees have complained when Subway grows its retailer rely and recommend that Subway typically pushes for systemwide income development over the account well being of particular person franchises. As a substitute of contemplating their present Subway franchises, they push new shops even when an area space is oversaturated.
Some Subway franchisees complain about different company dictates as properly. The most recent is the demand by Subway that every one franchises honor digital coupons within the app, one thing that about 10% of franchises had been declining to do on a constant foundation.
One Franchisee’s Numbers
A discussion board contributor who stated he owned three Subway franchises broke his P&L financials down this fashion:
- Meals: 33% (lowest retailer 30% and highest retailer 33%)
- Labor: 22% (lowest retailer 19% and highest retailer 22%)
- Hire: 9% (lowest retailer 3% and highest retailer 9%)
- Subway charges: 12.5%
- Utilities/Misc: 8.5%
- Revenue: 15% (lowest retailer 15% and highest retailer 22%)
He additionally gave an insider tip about company-owned gear: “I’d additionally recommend financing your gear as an alternative of leasing. The common Subway lease comes out to +20% curiosity the place as a standard mortgage could be within the 5-8% vary. Hope this helps!”
Guidelines for Subway Franchisee
So far as operating the enterprise, take into account that as a franchisee your freedom to function is constrained by the phrases of the settlement with the guardian firm.
Apart from mandating meals purchases and charging weekly royalty charges, Subway operates like most any restaurant chain with a franchise mannequin. Subway has groups that assist franchises get arrange (a web site choice staff, for instance) and groups that monitor franchise efficiency.
Subway employs what they name a Improvement Agent. A Improvement Agent, in Subway’s description, is “an area, on-site consultant of the Subway idea” who will “present native help not solely all through the appliance course of however continued help as you use your restaurant.”
Our StartupNation neighborhood posters had combined views on these Subway DAs, as they known as them. One poster gave this recommendation concerning DAs: “If you’re contemplating Subway, speak to current franchisees within the space and ask about their satisfaction with the DA of that space. Improvement Brokers are additionally anticipated to make sure franchisees are working inside firm tips by having discipline reps that examine shops month-to-month. They do far more than simply open shops.”
Whereas one other poster put it extra succinctly: “There’s super variation amongst areas, with some native growth brokers being useful, and a few are downright horrible.”
Shopping for A Subway Franchise: Preliminary Franchise Payment
So, earlier than you even get to the stage of earning profits from a Subway, you must make in preliminary funding within the firm. Fortuitously, should you’re decided to pursue a Subway franchise, the corporate operates on a comparatively low funding enterprise mannequin, and new or current franchises are sometimes obtainable.
Subway units desk stakes at a web value of $150,000 and liquid property, or money available, of $100,000 per location. That’s what’s wanted simply to be thought of for a Subway franchise function.
Subway Franchise Whole Funding
Then, your preliminary funding begins with the preliminary franchise charge of $15,000. On high of that, you’ll need an estimated $207,000 to $477,000 to spend money on your retailer, in response to Subway’s personal estimates. Your determine will depend upon such elements as constructing dimension, configuration and placement.
Remember that any reworking or renovation you do to your house should conform with Subway franchise tips. Some franchise house owners have ready their house forward of time solely to search out out that Subway’s retailer design staff didn’t think about them configured correctly for franchised shops.
So, with all that as primary background on the Subway franchise price and on what Subway franchise house owners may make, what’s subsequent?
First, allow us to share just a few ideas from contributors to “The Subway Publish.”
- It’s one factor to think about proudly owning your personal enterprise, however when you have by no means finished it, it’s best to suppose exhausting about all of the duties you’re taking up.
- Working a meals franchise is a grind. And though Subway supplies coaching lessons and help with issues like stock administration duties, the challenges of labor shortages and competitors are actual.
- The good thing about Subway will not be in proudly owning a Subway franchise a lot as proudly owning a number of Subway franchises. Posters say that multi unit house owners get probably the most out of the expertise.
On high of that, it’s best to look exhausting at the way forward for Subway Eating places itself.
Based in Bridgeport, Connecticut, in 1965 by Fred DeLuca and Peter Buck (each now deceased), Subway went via a tricky decade within the 2010s earlier than turning issues round.
In August 2023, Subway introduced that it had reached settlement to promote itself to Roark Capital, a personal fairness agency that owns a bunch of different restaurant operators and franchises (together with Subway rival Jimmy John’s.) Roark reportedly paid greater than $9.55 billion for the sandwich chain.
In asserting its plans to promote itself earlier in 2023, Subway emphasised that, coming off a powerful 2022 that noticed its same-store gross sales climb 9.2%, its technique was paying off.
“The administration staff stays dedicated to the longer term and can proceed to execute in opposition to its multi-year transformation journey, which features a give attention to menu innovation, modernization of eating places and enhancements to its total visitor expertise,” the corporate stated.
The mix of fewer shops and better gross sales per retailer stands as some extent in favor of changing into a Subway franchisee.
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Listed below are another professionals, adopted by some cons:
Execs of proudly owning a Subway franchise:
- Subway is a longtime model with a big buyer base, excessive loyalty amongst a few of these prospects and sturdy model recognition.
- Subway supplies franchisees with coaching, ongoing help, and entry to sources resembling advertising and marketing supplies and operational manuals.
- Subway begins you off with comparatively low franchise charges, so the Subway franchise price is cheap compared with different franchise alternatives.
- Subway permits some flexibility in creating menus to cater to native tastes.
- Subway has sturdy relationships with its distributors, which some franchisees tout as useful in shopping for high quality items for affordable costs.
Cons of proudly owning a Subway franchise:
- As our discussion board contributors talked about steadily, the Subway franchise royalty charge cuts into the revenue margin.
- Subway franchisees say menu flexibility doesn’t go far sufficient and that the requirements imposed restrict their potential to create distinctive menu choices.
- Competitors from different quick meals shops is intense, and even when Subway is now not the most important restaurant chain on this planet by variety of shops, some franchisees say there are nonetheless too many new franchises popping up.
- The quick meals trade total has excessive worker turnover, and Subway isn’t any exception.
- The framework and guidelines that apply to Subway franchise house owners might be limiting.
Rules of Beginning a Franchise
Clearly, whether or not to pursue a Subway franchise is a sophisticated query stuffed with the standard uncertainties that encompass any enterprise enterprise.
The identical might be stated, in fact, for franchising basically.
With that in thoughts, we wish to depart you with one other record that may assist anybody contemplating a Subway franchise or another franchise.
Franchising could be a nice alternative. But it surely must be best for you.
Listed below are 9 issues to learn about franchising. We primarily based this record on this text about beginning a franchise and this text about how franchising will help management your dangers.
- Analysis the franchisor: Earlier than investing in a franchise, analysis the franchisor’s historical past, financials, and fame. Search for crimson flags resembling lawsuits, chapter, or detrimental critiques.
- Perceive the franchise settlement: The franchise settlement is a authorized contract that outlines the rights and duties of the franchisor and franchisee. Perceive all phrases and circumstances.
- Consider the franchisor’s help: An excellent franchisor ought to present help in areas resembling coaching, advertising and marketing, and operations.
- Think about the franchise’s profitability: Take a look at the franchise’s financials, together with the preliminary funding, ongoing charges, and potential income. Be conservative when making projections.
- Know the franchise’s goal market: Be certain the franchise’s goal market aligns with your personal pursuits and strengths.
- Analysis the competitors: Take a look at the competitors within the franchise’s market and consider how the franchise differentiates itself.
- Perceive the dangers concerned: Like all enterprise enterprise, there are dangers concerned in beginning a franchise. Ensure you and have a plan to mitigate the dangers.
- Discuss to different franchisees: Get an thought of the experiences and challenges confronted by different franchisees within the system.
- Get skilled recommendation: Think about consulting with a lawyer, accountant, or franchise guide. They’ll present beneficial insights and enable you make an knowledgeable determination.
Conclusion
Since touchdown the StartupNation neighborhood discussion board in 2006, “The Subway Publish” has not solely remained related, however it has engaged entrepreneurs and the business-minded again and again. Hundreds of Subway franchises have opened, closed or modified palms in that point, and Subway Eating places has gone via its personal twists and turns.
The unique poster’s query—”What’s the common earnings of a Subway restaurant proprietor?”—was by no means answered right down to the greenback. However the posters received shut, and we hope this text has finished the identical for a 2024 reader.
We additionally hope we’ve got offered a transparent mind-set about Subway franchise possession and a few helpful tips on franchising basically.
This text was up to date in Might 2024.
