The True Cost of Buying a Franchise

Buying a franchise costs millions of dollars, right?

Yes and no.

Most people correlate franchises to big food brands like McDonald's, Wendy's & Taco Bell. They think of sport franchises, car dealerships, and celebrities like Shaq, Mark Walhberg, & Drew Brees.

People don't see the guy down the street who bought a painting franchise for $100k and now lives in a mansion. Or the guy who started with 1 fitness studio with a $75k down payment, rolled all profits into future locations, currently operates 10, and makes over $120k per month.

So how much does it cost to buy a franchise? Anywhere from $30k to $1M+ per unit.

I've categorize franchises into 5 levels:

What's All Included?

Before we dive into this steak, let's break down what's all included in the start-up costs.

Every franchise provides an investment range in Item 7 of their FDD. They list out everything you need to start up the franchise including:

• Franchise Fee

• Leasehold Improvements

• Furniture/Fixtures/Equipment

• Vehicles

• Signage

• Initial Inventory

• Great Opening Marketing

• Professional Fees

• Lease Deposits

• Insurance

• Training/Travel Expenses

• Working Capital

Most of the items have a tight range in costs. Insurance, for example, is going to be $1k to $2k. The biggest variance in costs you'll see usually comes from 3 categories:

• Vehicles: the low range is a downpayment or lease. The high range is buying outright.

• Initial Marketing: the low range is spending a little. The high range is spending a lot.

• Working Capital: low range could be $0. The high range could be 6 months of payroll

The goal of the Item 7 is to give you a ballpark investment. You’ll probably end up somewhere in the middle. You’ll develop a more accurate budget as you work with a franchisor, line up financing & talk to existing franchisees.

Example Item 7:

Low-Cost Franchises

Investment: $30k to $100k
Location: Home Based + Mobile
Role: Owner/Operator
Scalability: 1 to 3 units

These will be mobile businesses that can be operated out of your home to start. You may need a small storage facility for equipment and to park the trucks.

You could own a couple of local territories and make good money. These will be hard to scale beyond a handful of units due to the hands-on nature of the business.

Most people start these as "owner operator," meaning you are running the day-to-day of the business. That doesn't mean you are turning the wrench. You should be focused on driving the business:

• Sales

• Scheduling Jobs

• Customer Service

• Hiring & Training

• Networking

• Financials

• etc.

Some example franchises include:

Medium-Low Cost Franchises

Investment: $100k to $200k
Location: Flex/Office + Mobile
Role: Owner/Operator or GM
Scalability: 1 to 5 units

Next up, we're got "medium-low cost" franchises. Most of these you're going to operate out of a small office or flex space (office + small warehouse). Majority in this investment range will be mobile businesses.

Like the low-cost investments, you can own a couple of local territories, dominate your market, and make great money. These are also going to be harder to scale across the country.

Once established these should generate enough cash flow to hire a full-time General Manager (GM) to run the day-to-day business. This allows you as the owner to work ON the business not IN the business. Every higher-cost category from here on will support the GM model.

Medium Cost Franchises

Investment: $200k to $300k
Location: Flex or Retail
Role: Owner/Operator or GM
Scalability: 5, 10, 15 units

A lot more options open up in the $200-300k range. This budget allows you to purchase more expensive equipment for niche services like drain cleaning & mold remediation.

You can also get into concepts that have small retail footprints such as consumer electronics & assisted stretching.

The higher barrier to entry allows you to carve out a niche and focus more on operations than marketing.

These businesses will be easier to scale to multi-unit than the lower cost options since they are more process-driven than people-driven.

Medium-High Cost Franchises

Investment: $300k to $500k
Location: Flex or Retail
Role: Owner/Operator or GM
Scalability: 20, 50, 100+ units

At $300-500k you're getting into expensive retail build-outs, heavy equipment & inventory.

These businesses are very scalable. Other franchisees may have 20, 50, or even 100 units.

Your success in these depends on your ability to execute the model. Our Midas shops for example range from $700k/year to $2M/year in sales. Same marketing, size, quality of location, etc. The difference is the team's ability to execute.

High Cost Franchises

Investment: $500k to $15M (!)
Location: Flexor Retail
Role: Owner/Operator or GM
Scalability: 20, 50, 100+ units

Now we're getting into the big money. Even more expensive retail build outs, heavy equipment & inventory.

Furniture stores, tire retailers, german beer pubs, boxing gyms, etc.

Similar to above, success in all of these is highly dependent on your ability to execute

Does a higher cost = higher return?

To be honest some of the average sales per unit of these high-cost franchises aren't much different than the average sales per unit of lower-cost franchises.

I'd rather invest in 5 units for $200k each than 1 unit for $1M. Every unit will go through ups & downs. The more units you own the less variance in overall performance. If you only have 1 location your cash flow will be on a rollercoaster.

As you can see there's a franchise for almost everyone. Franchising provides one of the best paths to generate significant cash flow, build wealth & create freedom.

When you're ready, there are 2 ways I can help:

Franchise Group Coaching - for those just getting started in franchising. Learn everything you need to know to buy your first franchise.

Personalized Franchise Matching - I help people find the best franchise based on their skills, budget, goals, & location

Lets’s Connect

Twitter: @brianbeers

Podcast: Business with Beers