What Is the Common Revenue of a Subway Restaurant Franchise Proprietor?

Lengthy earlier than Subway the enormous sandwich chain put itself up on the market and located a suitor within the personal fairness agency Roark Capital, an entrepreneurial member of the StartupNation neighborhood posed a query.

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 anybody who owns a Subway, how a lot do they make month-to-month? Or if anybody who owns just a few Subway places, 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 subsequent 15+ years, they continued responding, layering questions on high of feedback on high of compliments like, effectively, like a large Subway sandwich:

They mentioned and debated every thing from Subway franchise price to Subway franchise profitability to Subway guidelines, rules and non-traditional places.

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“The Subway Publish”

The Subway Publish,” because it got here to be recognized at StartupNation, grew into a number of pages through the years as scores of neighborhood members—Subway franchise homeowners, 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, as Subway awaits acquisition by Roark Capital, StartupNation determined to revisit “The Subway Publish” and replace any data we might. We additionally wished to put Subway store possession within the context of franchising total.

However, first, what about that authentic query? How a lot can you make from proudly owning a Subway franchise?

Subway Franchise Profitability

Properly, 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, it’s possible you’ll 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 individual analysis.

The truth is, 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 few 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 give you the precise data of that outlet. If you happen to obtain another monetary efficiency data or projections of your future revenue, it is best to report it to the franchisor’s administration. …”

Profitability Estimates from Posters

In responses to the unique publish in 2006, individuals figuring out themselves as Subway franchisees or Subway staff conversant in franchise operations offered varied revenue estimates.

Some stated franchisees ought to count on to see 20% revenue margins. Tightly managed retailers can push 25% money stream, and ones with weaker operations may clear solely 15% a 12 months.

Which means a location on the excessive finish of the gross sales chart may throw off $150,000 a 12 months 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 in the event you actually push it (work within the retailer your self, preserve meals and labor prices as little as doable, and keep on high of loss prevention) you’ll be able to attain a revenue margin of about 25%.  So, you probably have a retailer averaging $10,000 every week in gross sales, you`ll make about $10,000 a month revenue.  Take into account, this isn’t simple and most Subway homeowners don`t do that effectively.

A poster who recognized himself as “Subway Proprietor” was extra bullish on the chance:

I personal three Subway eating places.  I don`t wish to make anybody mad, however some issues posted listed here are both incorrect or deceptive.  First off, I’ve been concerned with Subway for 17 years, since 1989, and it’s a good firm.
The typical retailer within the US does a bit of shy of $8,000/week.  So for simple spherical numbers let’s say the typical retailer does $400k/12 months.  It’s comparatively simple to tug 20% revenue in the event you keep watch over the enterprise.  I averaged 22.63% for the primary quarter this 12 months and I used to be in my shops a mean of 10 hours or much less per week, so 20% shouldn’t be that onerous.  However for the next estimate, let’s use 20% common revenue.
If in case you have a retailer that’s merely common it is best to revenue within the ballpark of $80k/yr.
Now let’s say you had been fortunate sufficient to get an incredible location and also you retailer does $15k/week (the world I’m in has a number of shops that do that and way more in gross sales so it is extremely doable), effectively, you ought to be making in extra of $150k per 12 months.
Now, one or two shops usually are not going to make you a multi-millionaire, however you can also make a cushty residing 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 had been widespread and that to make a residing off Subway franchising one needed to personal a number of places. They warned that except you would construct up your individual enterprise of Subway franchises, you may simply be shopping for a job, and in some circumstances shopping for a low-paying job.

Changing these 2006 {dollars} to 2024 buying energy is fraught given the current excessive inflation and the specificities of meals prices and the restaurant enterprise. However a straight conversion primarily based on basic inflation would put that vary of earnings at $42,000-$225,000 in right this moment’s {dollars}.

So, How A lot Do Subway Franchise Homeowners Make?

So, how may we estimate right this moment’s Subway franchise financials by means of analysis of obtainable documentation? Properly, 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 complete gross sales, Subway is correct there battling for the highest spot by variety of shops (virtually 37,000 shops worldwide in 100 international locations, with about half of these in the US).

On common, a typical Subway retailer will gross about $420,000 a 12 months, primarily based on Subway’s personal figures and business 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 truly decreased for a lot of the 2010s, till a turnaround in 2021-22.

So, if our working quantity is $420,000 a 12 months 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 have a look at the preliminary funding, such because the franchise payment, later.)

Subway Franchise Price: Royalty Charges

Begin with the Subway franchise royalties. The royalty payment is 8% of product sales, whereas the promoting payment 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 effectively, and so they’re listed in that disclosure doc. However the huge charges are these two that add as much as 12.5% of product sales, and Subway is evident in its documentation about accumulating these:

“Product sales” contains all gross sales of each sort 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 need to submit signed kinds to permit us to deposit drafts towards your checking account for the complete 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 working a meals franchise. You’ll have hire and utilities, in fact, or different bills reminiscent of property taxes and constructing upkeep in the event 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 payment as effectively.

Labor prices will rely on 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 wish to rethink the plan.

Meals prices are more likely to account for the largest chew of your bills. Within the Subway franchise system, homeowners should purchase from Subway-approved suppliers.

Subway cites high quality management and buying energy because the positives of this association, and a few homeowners of Subway franchises contributing to “The Subway Publish” praised the system for serving to them with account well being monitoring and stock monitoring. Others, nevertheless, pleaded for extra flexibility, questioning Subway’s “eat recent” slogan and saying they might supply higher substances at a fairer value 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 rely on location and the quantity of competitors, together with from extra places within the Subway household.

Franchisees have complained when Subway grows its retailer rely and recommend that Subway typically pushes for systemwide income progress over the account well being of particular person franchises. As an alternative of contemplating their present Subway franchises, they push new shops even when a neighborhood space is oversaturated.

Some Subway franchisees complain about different company dictates as effectively. The most recent is the demand by Subway that each 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%)
• Lease: 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 might additionally recommend financing your gear as an alternative of leasing. The typical Subway lease comes out to +20% curiosity the place as a conventional mortgage could be within the 5-8% vary. Hope this helps!”

Guidelines for Subway Franchisee

So far as working the enterprise, understand 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 website choice group, for instance) and groups that monitor franchise efficiency.

Subway employs what they name a Improvement Agent. A Improvement Agent, in Subway’s description, is “a neighborhood, on-site consultant of the Subway idea” who will “present native assist not solely all through the appliance course of however continued assist as you use your restaurant.”

Our StartupNation neighborhood posters had blended views on these Subway DAs, as they referred to as them. One poster gave this recommendation concerning DAs: “In case you are contemplating Subway, discuss 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 way more than simply open shops.”

Whereas one other poster put it extra succinctly: “There may be great variation amongst areas, with some native improvement brokers being useful, and a few are downright horrible.”

Shopping for A Subway Franchise: Preliminary Franchise Price

So, earlier than you even get to the stage of earning money from a Subway, it’s a must to make in preliminary funding within the firm. Happily, in the event 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 out there.

Subway units desk stakes at a internet value of $150,000 and liquid belongings, or money readily available, of $100,000 per location. That’s what’s wanted simply to be thought-about for a Subway franchise position.

Subway Franchise Whole Funding

Then, your preliminary funding begins with the preliminary franchise payment of $15,000. On high of that, you’ll need an estimated $207,000 to $477,000 to put money into your retailer, in response to Subway’s personal estimates. Your determine will rely on such components as constructing dimension, configuration and site.

Remember the fact that any transforming or renovation you do to your house should conform with Subway franchise tips. Some franchise homeowners have ready their house forward of time solely to seek out out that Subway’s retailer design group didn’t take into account them configured correctly for franchised shops.

So, with all that as primary background on the Subway franchise price and on what Subway franchise homeowners may make, what’s subsequent?

First, allow us to share just a few ideas from contributors to “The Subway Publish.”

1. It’s one factor to think about proudly owning your individual enterprise, however you probably have by no means finished it, it is best to assume exhausting about all of the duties you’re taking over.
2. Operating a meals franchise is a grind. And regardless that Subway offers coaching lessons and assist with issues like stock administration duties, the challenges of labor shortages and competitors are actual.
3. The good thing about Subway shouldn’t be in proudly owning a Subway franchise a lot as proudly owning a number of Subway franchises. Posters say that multi unit homeowners get probably the most out of the expertise.

On high of that, it is 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 by means of 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 pays as much as $9.55 billion for the sandwich chain, assuming the sale doesn’t run into regulatory obstacles. 

That stated, the Federal Commerce Fee is investigating whether or not the sale of the Subway sandwich chain needs to be allowed to go forward. Opponents of the Subway sale contend that including Subway to Roark’s roster will consolidate an excessive amount of of the sandwich market beneath one proprietor.

The investigation is within the early phases, Politico reported in late 2023, including: “Merger evaluations by antitrust regulators can typically take a 12 months or extra. The FTC can both sue to dam the merger, attain an settlement with the businesses that alleviates its issues, or take no motion in any respect.”

Within the meantime, Subway is shifting ahead with new promotions and different modifications meant to extend retailer gross sales.

Among the many modifications is a requirement that all franchises settle for digital coupons. Among the many new merchandise is a assortment of three snacks that Subway is looking, “Sidekicks.” The three new footlong snacks are a Subway chocolate chip cookie formed into an extended strip and sufficiently big for 4 individuals, in addition to footlong churros and pretzels.

In asserting its plans to promote itself earlier in 2023, Subway emphasised that, coming off a robust 2022 that noticed its same-store gross sales climb 9.2%, its technique was paying off.

“The administration group stays dedicated to the longer term and can proceed to execute towards its multi-year transformation journey, which features a deal with menu innovation, modernization of eating places and enhancements to its total visitor expertise,” the corporate stated.

The mixture of fewer shops and better gross sales per retailer stands as a degree in favor of turning into a Subway franchisee.

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Listed below are another professionals, adopted by some cons:

Execs of proudly owning a Subway franchise:

1. Subway is a longtime model with a big buyer base, excessive loyalty amongst a few of these prospects and sturdy model recognition.
2. Subway offers franchisees with coaching, ongoing assist, and entry to assets reminiscent of advertising supplies and operational manuals.
3. Subway begins you off with comparatively low franchise charges, so the Subway franchise price is affordable as compared with different franchise alternatives.
4. Subway permits some flexibility in creating menus to cater to native tastes.
5. Subway has sturdy relationships with its distributors, which some franchisees tout as useful in shopping for high quality items for cheap costs.

Cons of proudly owning a Subway franchise:

1. As our discussion board contributors talked about incessantly, the Subway franchise royalty payment cuts into the revenue margin.
2. Subway franchisees say menu flexibility doesn’t go far sufficient and that the requirements imposed restrict their capability to create distinctive menu choices.
3. Competitors from different quick meals shops is intense, and even when Subway is not the most important restaurant chain on the planet by variety of shops, some franchisees say there are nonetheless too many new franchises popping up.
4. The quick meals business total has excessive worker turnover, and Subway isn’t any exception.
5. The framework and guidelines that apply to Subway franchise homeowners might be limiting.

Ideas of Beginning a Franchise

Clearly, whether or not to pursue a Subway franchise is an advanced query filled with the standard uncertainties that encompass any enterprise enterprise.

The identical might be stated, in fact, for franchising typically.

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 needs to 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 can assist management your dangers.

1. Analysis the franchisor: Earlier than investing in a franchise, analysis the franchisor’s historical past, financials, and repute. Search for crimson flags reminiscent of lawsuits, chapter, or detrimental evaluations.
2. 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 situations.
3. Consider the franchisor’s assist: franchisor ought to present assist in areas reminiscent of coaching, advertising, and operations.
4. Contemplate the franchise’s profitability: Have a look at the franchise’s financials, together with the preliminary funding, ongoing charges, and potential income. Be conservative when making projections.
5. Know the franchise’s goal market: Ensure that the franchise’s goal market aligns with your individual pursuits and strengths.
6. Analysis the competitors: Have a look at the competitors within the franchise’s market and consider how the franchise differentiates itself.
7. Perceive the dangers concerned: Like several enterprise enterprise, there are dangers concerned in beginning a franchise. Ensure you and have a plan to mitigate the dangers.
8. Discuss to different franchisees: Get an thought of the experiences and challenges confronted by different franchisees within the system.
9. Get skilled recommendation: Contemplate consulting with a lawyer, accountant, or franchise guide. They’ll present helpful insights and assist you make an knowledgeable resolution.

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 repeatedly. 1000’s of Subway franchises have opened, closed or modified fingers in that point, and Subway Eating places has gone by means of its personal twists and turns.

The unique poster’s query—”What’s the typical revenue of a Subway restaurant proprietor?”—was by no means answered all the way down to the greenback. However the posters bought shut, and we hope this text has finished the identical for a 2024 reader.

We additionally hope we’ve offered a transparent mind-set about Subway franchise possession and a few helpful tips on franchising typically.

This text was up to date in January 2024.