In the small business industry, many entrepreneurs favor franchise ownership over starting unique businesses. With franchise ownership, franchisee entrepreneurs gain the benefit of licensing established business procedures and processes from the franchisor. These licensing benefits give the business owner numerous advantages including association with an established business and the benefits of an already established branding strategy. In the fast-food industry overall, Subway is a well-established licensor of its sandwich stores. It is one of the most popular businesses to franchise and is also known to have among the lowest franchising costs.
Subway has a long history in the fast food business. It is a privately owned company with its first restaurant opened in Connecticut by founder Fred DeLuca in 1965. Its deep roots have allowed the company to build a strong strategic brand around its sandwiches and the overall fast-food experience. At one point in 2013, the fast-food chain was opening 50 new stores a week. This growth has helped the total store count to increase worldwide, with more than 40,000 stores open in 2019.
Cost of Franchising a Subway Restaurant
One of the leading selling points for a Subway sandwich shop is the low cost of opening a franchise. As the first step in opening a franchise operation, the franchisee is typically required to identify a store site and pay the initial costs. Initial costs for a store site include its real estate and construction expenses. For a Subway business, it is estimated the total cost for the initial restaurant site ranges from $116,000 to $300,000 in the United States, according to franchisehelp.com, much lower than other competing fast-food franchises.
Other costs are involved in franchising the business. An initial startup licensing fee of $15,000 is required to begin the business. Annually, royalty fees are also required. Subway royalty fees are 8% of annual gross sales. Additionally, the franchisee is required to pay an ad fund fee that is 4.5% of total gross sales.
Procedure for Franchising a Subway Restaurant
An in-depth due diligence process is required for a franchise, and the franchisee must pass a number of specific requirements before entering into a full licensing agreement with a Subway franchisor. The first step for a Subway franchisee entrepreneur is typically getting the business site approved. This requires in-depth market research and is also where a large amount of the franchisee’s capital is invested. Beyond gaining approval of a Subway business site, the franchisee entrepreneur must also have a specified net worth from $80,000-$310,000. A liquidity requirement is also typically involved with franchisee entrepreneurship, and this requirement for a Subway franchise ranges from $30,000-$90,000.
Upon gaining site approval and passing the capital requirements, next the franchisee enters into a licensing agreement with the franchisor. One of the greatest benefits of a franchised business is the ability to gain use of the company’s operational procedures, trademark rights and branding. With these licensed business advantages, franchisees can primarily rely on the established marketing of the franchised business for its sales.
Sales From a Subway Franchise
Subway sandwiches and the Subway business are both well established, which helps Subway be a leading revenue producer in the fast-food sandwich industry. Subway has consistently ranked No. 1 in franchising businesses as reported by Entrepreneur Magazine, including 125 in 2019. With the high rankings and well-established business, franchisee investors can expect a high return on their investment from sales revenue.