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Fees and Expenses to Franchise a Restaurant: Beginner’s Guide

Explore key franchising costs to franchise a restaurant, covering fees, real estate, equipment, and insurance.

3 mins readDecember 26, 2023

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Embarking on a restaurant franchise journey? This comprehensive guide dives into the crucial aspects of franchising costs and expenses you’ll need to budget for.

You'll explore various fee categories, from Initial Franchise Fees to Real Estate Development, and Equipment costs. We'll dissect the factors influencing these expenses, helping you estimate your investment accurately.

Whether it's understanding the impact of business model sophistication on fees or navigating insurance costs, this article is your roadmap to making informed financial decisions when franchising a restaurant.

Case study: Baskin-Robbins’ Franchise Fees

To better understand the fees and expenses to franchise a restaurant, we’ve taken those from Baskin-Robbins, an American multinational chain of ice cream and cake specialty shops:


Table 1: Baskin-Robbins Franchise Fees

Type of FeeBenefit for FranchiseeAmount
Initial Franchise Fee (IFF)Right to open and operate a Baskin-Robbins restaurant for 20 years$25,000 per restaurant
Reimbursement of ExpensesCovers costs if the franchisee or architect is unprepared for a scheduled meetingVariable
Real Estate Lease Related ChargesSecurity deposit or charges under real estate lease or subleaseVariable
Training Related FeesAccess to franchisee training program$300 online access fee per location annually; $1,600 for new franchisee training; $1,500 per additional person; $1,000 for Baskin-Robbins Express training per person
Marketing Start-Up FeeStart-up promotional program as per brand standards$5,000 - $10,000 depending on the situation

Table 2: Estimated Initial Investment for a Baskin-Robbins Restaurant


Restaurant Costs

How much does it cost to run your new restaurant? How will you manage labor costs, food costs and other expenses? Ditch the calculator and read these tips before you start calculating figures.

Breaking Down the Franchise Costs and Expenses

The cost ranges above are wide for good reason. There are many factors that will determine whether the amount would be on the lower end or the higher end. Below we shed light on those factors to help you better estimate the costs and expenses in franchising your first restaurant:

1. Initial Franchise Fee (IFF): $12,500 - $25,000

Sophistication and uniqueness of the franchise business model


Based on the information from FranSource, one of the factors that could influence whether the IFF falls at the lower or higher end of this range is the degree of sophistication and uniqueness of the franchisor’s business model.

A more sophisticated and unique business model may command a higher IFF due to its distinct market position and potential competitive advantages. Let’s look at the factors that would distinguish a higher-end priced IFF, from a lower-end one:


CategoryBusiness Model TypeCharacteristicsExamples
Sophisticated and UniqueTechnology-Driven RestaurantsAdvanced technology integration like AI, app-based ordering, kitchen automationAI-powered restaurant recommending dishes based on preferences
Gourmet/Specialized Culinary OfferingsHigh-end, specialized menus often led by renowned chefsGourmet vegan cuisine franchise
Innovative Service ModelsUnique concepts like conveyor belt sushi, automated serving systemsSushi restaurant with automated conveyor system delivery
Less SophisticatedTraditional Fast FoodStandard menus with common items like burgers, friesLocal burger and fries franchise
Classic Dine-In RestaurantsConventional service with familiar ambiance, general menuFamily-style restaurant with a variety of cuisines
Basic Café ModelsSimple setups with coffee, pastries, light snacksNeighborhood café with basic coffee and sandwiches

This table helps to distinguish between more innovative, unique franchise models that might command a higher Initial Franchise Fee (IFF) due to their distinct market position and competitive advantages, and more traditional, common models that might have a lower IFF due to their standard market position and lesser differentiation.

Franchise restaurant

ROI and Profitability


According to FranSource, another factor that could influence whether the IFF falls at the lower or higher end of this range includes understanding a franchise's potential ROI (Return on Investment) and profitability.

This is crucial for a franchisee, especially when assessing whether a higher Initial Franchise Fee (IFF) is justified. Here are key steps and documents a potential franchisee should consider to evaluate these aspects:

1. Review the Franchise Disclosure Document (FDD)

  • Item 19: This section provides Financial Performance Representations. It may include data on sales, income, or profits of existing outlets.
  • Item 20: Lists the number of franchised and company-owned outlets, their openings, closings, and transfers, giving insight into the growth and stability of the franchise.

2. Analyze Historical Sales and Profit Margins

  • Request historical sales data and profit margins of existing franchise units.
  • Compare these figures across different locations and over several years to gauge consistency and growth.

3. Evaluate Market Trends and Demand

  • Research the market demand for the products or services offered by the franchise.
  • Understand current and future trends in the industry to assess long-term viability.

4. Assess Brand Strength and Market Reputation

  • Look into customer reviews, brand recognition, and awards.
  • Conduct surveys or focus groups to understand the brand's perception among consumers.

5. Consider Location and Demographics

  • Analyze the success of franchises in locations similar to where you plan to open.
  • Demographic studies can reveal the potential customer base and spending habits.

6. Consult with Existing Franchisees

  • Speak with current franchisees about their experiences, profitability, and satisfaction with the franchisor.
  • Inquire about support received, marketing effectiveness, and any challenges faced.

7. Understand the Support and Training Offered

  • Comprehensive training and ongoing support can significantly impact a franchise's success.
  • Evaluate the quality and extent of training, marketing support, and operational guidance.

8. Review Financial Statements and Projections

  • Examine the franchisor's financial statements for stability and growth indicators.
  • Assess any financial projections or business plans provided for new franchisees.

9. Legal and Compliance Checks

  • Ensure the franchise complies with all legal and regulatory requirements.
  • Check for any past or ongoing legal disputes involving the franchisor.

10. Professional Consultation

  • Consult with a franchise attorney and a financial advisor for a professional evaluation.
  • They can help interpret the FDD, financial data, and legal aspects.

Chinese restaurant owner

2. Real Estate Development: $11,200 - $125,000

There are specific factors affecting the cost of Real Estate Development for restaurant franchising:


Factors Affecting Lower Range CostsFactors Affecting Higher Range Costs
Location: Less expensive areas or regions with lower real estate prices can significantly reduce development costs.Prime Locations: High-demand areas or prime commercial locations typically have higher real estate costs.
Size of the Property: Smaller properties or spaces requiring less renovation or construction work can fall into the lower range.Larger or Multiple Locations: Developing larger spaces or multiple locations can increase costs.
Simplicity of Design and Layout: Basic designs and minimal structural changes can keep costs down.Complex Design and High-End Finishes: Custom designs, high-end materials, and finishes can drive up development costs.
Pre-Existing Infrastructure: Utilizing a space that already has necessary utilities and facilities can reduce development costs.Extensive Renovations or Construction: Properties requiring significant remodeling or construction work will incur higher costs.
Lease vs. Purchase: Opting to lease a property instead of purchasing can result in lower initial investment.Purchasing Property: Opting to buy property outright can result in a higher initial investment compared to leasing.

PRO TIP: For a more detailed and specific analysis, it would be beneficial to consult with real estate experts in the restaurant franchising sector or to access industry-specific reports and data. Additionally, reviewing case studies of similar franchises and their real estate development expenses can provide valuable insights.

Restaurant food waste

3. Equipment, Trade Fixtures, and Signs: $32,000 - $127,600

For a franchisee, understanding the factors affecting the costs of Equipment, Trade Fixtures, and Signs in restaurant franchising is crucial:


Factors Affecting Lower Range Costs ($32,000)Factors Affecting Higher Range Costs ($127,600)
Standard Equipment: Opting for basic, no-frills equipment that meets essential operational needs without additional features.High-End Equipment: Investing in top-of-the-line, technologically advanced kitchen equipment and appliances.
Economical Trade Fixtures: Choosing more affordable fixtures and fittings that are functional but not high-end.Customized Trade Fixtures: Opting for custom-built or designer fixtures and fittings that enhance the aesthetic appeal.
Basic Signage: Installing simple, less elaborate signage without advanced lighting or digital components.Advanced Signage Solutions: Implementing sophisticated signage with digital displays, LED lighting, or unique branding elements.
Second-Hand or Refurbished Items: Purchasing used or refurbished equipment and fixtures can significantly reduce costs.Larger Scale Operations: Larger restaurant spaces requiring more equipment and fixtures to operate efficiently.
Smaller Scale Operations: A smaller restaurant space requiring fewer and less complex equipment and fixtures.Brand-Specific Requirements: Franchisors with specific brand standards that require premium equipment, fixtures, and signage.

Pro tip: It's advisable to thoroughly review the franchisor's requirements in the Franchise Disclosure Document (FDD) and consult with industry experts or existing franchisees to get a realistic estimate of these costs. Additionally, considering the long-term value and return on investment of higher-quality equipment and fixtures can be beneficial for the sustainability and growth of the franchise.

4. Insurance: $3,500 - $8,300

In the dynamic world of restaurant franchising, safeguarding your business against unforeseen risks is paramount. The right insurance not only protects your financial investment but also ensures the well-being of your employees and the continuity of your operations.

Whether your franchise insurance costs are at the lower end or the higher end of the spectrum will be based on the following factors:


1. Packaging together the essential covers under one policy


If your franchisor gives you the freedom to choose your insurance provider, you’ll want to choose one that allows you to package together the three main restaurant risks under one package, called a Business Owners’ Policy.

Business Owner’s Policy (BOP) is the most cost-effective solution that offers all-in-one coverage. It combines three essential coverages into a single policy:

1. Commercial Property: Your franchise restaurant premises are vulnerable to property damage or loss of equipment, particularly as a result of a fire in the kitchen. Commercial Property Insurance helps your franchise recover quickly from property damage or loss.

2. General Liability: Slips and falls are common in franchise restaurants with lots of foot traffic. General Liability Insurance covers your franchise when faced with claims of bodily injury, as it contributes to the injured party’s medical costs and to your legal fees.

3. Business Interruption: Your franchise may suffer financial loss if a disaster forces you to close temporarily. Business Interruption Insurance supplements your business’ income in the event of a covered loss.

Business Owners Policy BOP

2. Protecting your restaurant staff


Taking out Workers’ Compensation insurance in addition to a BOP may add to your insurance premiums, but it will save you money in the long term, thereby paying for itself over time.

Workers’ Compensation is an essential insurance for restaurant franchises, mandated in most US states. It plays a critical role in ensuring the well-being of employees within the franchise, while also keeping the franchise legally compliant.

This coverage is particularly important for franchisees, as it provides a safety net for employees who suffer work-related injuries or illnesses, and limits the franchise’s legal liability.

This policy is a safeguard for your franchise against costly legal claims. Employees receiving Workers’ Compensation benefits relinquish the right to sue for injuries, which is a significant advantage for franchisees in managing risk.

Additionally, having Workers’ Compensation ensures that your franchise adheres to legal requirements, avoiding potential fines or legal complications.

Infographic - Workers Compensation Insurance

Case Studies from the Biggest Restaurant Franchises

The individual fees as well as the total estimated initial investment will vary considerably depending on the franchisor. These are the fees, costs and expenses from well-known franchise restaurants:

Restaurant franchise fees infographic

Takeaways

  1. Examine Initial Franchise Fees: Understand that fees like Baskin-Robbins' $25,000 per restaurant are for the right to operate under the brand for a set period.

  1. Assess Reimbursement of Expenses: Be prepared for costs incurred due to unpreparedness for scheduled meetings, as these can vary.

  1. Budget for Real Estate Lease Charges: Factor in security deposits or charges under real estate leases, which can fluctuate based on location and property size.

  1. Allocate Funds for Training Fees: Set aside funds for training-related expenses, including online access fees and training programs, which are essential for operational success.

  1. Plan for Marketing Start-Up Fees: Prepare for initial marketing costs, which can range from $5,000 to $10,000, to align with brand standards.

  1. Evaluate Total Estimated Initial Investment: Consider the comprehensive investment, including equipment and signage, which can range from $93,550 to $407,300 for a Baskin-Robbins franchise.

  1. Understand the Impact of Business Model Sophistication: Recognize that a more unique and sophisticated business model may command a higher Initial Franchise Fee due to its market position and advantages.

  1. Consider ROI and Profitability: Review the Franchise Disclosure Document (FDD) for financial performance and growth stability, and analyze historical sales and market trends to gauge potential ROI.

  1. Factor in Real Estate Development Costs: Be aware that location, property size, design complexity, and whether you lease or purchase can significantly impact real estate development costs.

  1. Prepare for Insurance Expenses: Understand that insurance costs, ranging from $3,500 to $8,300, will depend on coverage types, franchise size, asset value, and specific franchisor requirements.

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