Let's talk about becoming a franchise owner

[BigWill]

Mcdonalds franchises make stupid amounts of money

Eh, not so much. My friend owns one after working there for almost 10 years. Don't think she even makes 50k/year. She works there 24/7 too.

I don't think I could stand being around the types of people who eat there all day. Even for 500k. Bunch of fat unhealthy monkey fucks, lol.

 

[tencentpiece]

How restrictive are they in terms of promotion usually? Like doing special coupons for just your store only. I know this one subway owner used to run promotions that stores not owned by him didn't have to drive up business. Wondering if any of them outright restrict it?

Most if not all of them outright restrict it, a lot of them also restrict you setting up your own websites/fanpages and other number of other bullshit agreements you need to sign.

I looked into it a while back (in Australia at least) and I had nowhere near enough capital, everybody I spoke to said that you needed at least three stores to even think about starting to make a decent return on your investment and even then you needed 5+ to get a better ROI than you would from shares.

 

[FTC-Hater]

Internet Marketing > All

lol, no... just no.

@OP - Don't own any franchises nor have looked into any. But I know quite a few people who own franchises.

I live in a market of around 100,000 people and know the guy who owns all the Tim Hortons (seven or eight) and the guy who owns all the Wendy's (two with a third opening this fall).

Also know the guy who owns two Tim Hortons in the military base / military town (largest in Canada) just a few minutes away from the city. Also have talked briefly with the guy who owns all the Tim Hortons (not sure if he has the rights to Wendy's too, usually they're packaged here so you have a duplex of Tims/Wendys) in the whole province of P.E.I but know one of his good friends.

So don't know too much first hand knowledge, but neither does anybody in this thread so.

First of all what people forget is you have a few different franchise models, the most popular is where you get the rights to an area. Part of the deal may include an understanding or an actual contract to build more stores in the future based on the success of the first (one this year, one next year, one within the following five years, etc).

Second when opening a franchise you'll be given an estimated revenue/profit based on the company's evaluation of the market, etc. I know of many people who know that a Tim Hortons can do well in a small town and are willing and more than able to pay up for it but Tim Hortons refuses based on it's core criteria that has to be hit. So even if you have your own data, and ultimately it is your own money, Tim's is very strict about where it's stores are put.

I believe Subway's estimated profits are around 50k (average) for the owner so using that as a parameter to determine if franchises are worth going after is ridiculous.

I know for a fact that the Wendy's guy does 2-3 million a year (since we're quite good friends). Tim Horton's locally here do 4-5 million as told to me by the Wendy's guy (they're friends). Tim's guy in the military base/area probably (guesstimating) does 1.5 million or so.

The guy who owns all the ones on P.E.I apparently does well into the eight figures a year. He lives in what looks like a legitimate castle and loves horses so has a staff to take care of his daughters horses that all cost more than Ferraris.

None of them work overly hard. Rules may have changed since they bought their respective rights but I know the owner of Tim's locally doesn't ever go to the stores unless needed and I think the Wendy's guy goes in every now and then just when he's bored (no kids, no wife and no other hobby/income).

So definitely a lot of money to be made in quite small markets. The thing though at this point all the rights to most of these franchises are already taken up. And I'm not sure if they can be sold except back to the company.

On the flip side though a family friend bought the franchise for Home Hardware Home (Canadian franchise I believe) which was basically a shitty Ikea. He poured everything he had into it, had a building built instead of renting, and worked 15 hours a day for a year and just last month he filed bankruptcy and closed shop. He never had a profitable week except for his liquidation week before he closed shop.

So there you have it. In my limited experience of just talking to friends who own franchises (namely the Wendy's guy) and gossiping about others in the industry, how much they make, what they drive, where they live, etc. that's my perspective. Probably a pretty accurate one.

It's certainly a lot of work. You need to get your clearance from the city to build, find the right location (so crucial), train your initial staff, probably be at the store all day for at least a month or so, have your store built to specific specifications that the company will give you, etc. It's great when it gets to the passive stage, but I think everybody would tell you it's initially a load of work.

But ultimately all these guys live in million dollar homes, each have at least one exotic (200k+) car, spend at least a quarter or two outside the country not working, play an unimaginable amount of golf, etc.

Also fun fact: I guess most guys with multiple stores have like a "general manager" for all your stores that's essentially what you should be doing as a franchise owner. They just drive to every store and stay for a few hours a day making sure everything is going alright, hiring, firing, basic accounting, making sure shipments arrived, etc. My friend who owns Wendy's pays his guy (who looks over the two stores) 125k a year for it. Thought that was pretty interesting.

TL;DR - big brands make big monies, obscure brands are hit or miss.

EDIT: Also OP if you were serious about opening either a Tim's or Wendy's (both are in the US, actually Tim's is picking up a very significant amount of marketshare there) I could get you on a call with the owner of either so they could give you their opinion.

 

[jhindi]

Know people who own 60-150 gas stations, and they make lots of money.

Usually companies that own that many stations are called jobbers. They own the property of the stations and lease them out. They make their money by charging key money for the station, collecting rent, and supplying the gas to these stations. These are the real big timers.

The requirements of owning a major name franchise like McDonalds is very difficult and requires that you own a certain amount of assets.
I know that for Dunkin Donuts you need at least 5 locations and a million in assets.

 

[stmadeveloper]

Buddy of mine just sold his gas station. He'd locked into a 10 year franchise agreement when he purchased the place so he couldn't make the changes needed to be profitable. He started out great - but we all know that gas prices have sucked for the last few years. It hurts the stations too.

He was losing money hand over fist for two years.

Why?

He had to buy the gas from the company. When a chain gas station opened up down the street and was selling gas 14 cents a gallon cheaper than he could buy it for.

He got a crap load for the land when he sold it so he broke even. But imagine owning a business for 7 years and working for free for 7 years.

 

[chipmunk]

Here is an interesting case from 2009 as it relates to advertising and corporate. This was a pretty well publicized battle.

CHICAGO — Burger King franchisees sued the hamburger company this week over its $1 double cheeseburger promotion, saying they're losing money on the deal and the company can't set maximum menu prices.
The National Franchise Association, a group that represents more than 80 percent of Burger King's U.S. franchise owners, said the $1 promotion forces restaurant owners to sell the quarter-pound burger with at least a 10-cent loss.
While costs vary by location, the $1 double cheeseburger typically costs franchisees at least $1.10, said Dan Fitzpatrick, a Burger King franchisee from South Bend, Ind. who is a spokesman for the association. That includes about 55 cents for the cost of the meat, bun, cheese and toppings. The remainder typically covers expenses such as rent, royalties and worker wages.
"New math, or old math, the math just doesn't work," Fitzpatrick said.
After testing the $1 deal in markets across the country, the discounted burger went on sale nationwide last month even though franchise owners, who operate 90 percent of the company's 12,000 locations, twice rejected the product because of its expense.
"The current management team has disregarded rights that Burger King franchisees have always had," Pennsylvania franchise owner Steve Lewis said in a statement.
Denise Wilson, a spokeswoman for the nation's No. 2 hamburger chain, said the Miami restaurant company believes the litigation is "without merit," particularly after an earlier appeals court ruling this year showing the company had a right to require franchise owners to participate in its value menu promotions.
Restaurants, especially fast-food chains, have been slashing menu prices because of the poor economy. Executives hope the deeply discounted deals will bring in diners who are spending less when they eat out, or opting to stay home altogether.
When the $1 double cheeseburger was announced this fall, analyst said it could increase restaurant visits by as much as 20 percent. But despite that boost, a Deutsche Bank analyst said as much as half of the gain recorded from increased traffic could be lost because customers were spending less when they ordered food.


In April 2011 The result was:
A lengthy legal dispute between Burger King and its franchisees about a $1 double cheeseburger promotion is being dismissed, the company announced Monday. The lawsuit, filed in 2009 by the National Franchisee Association on behalf of Burger King franchisees, argued that the company's decision to price the double cheeseburger at $1 on its Value Menu hurt franchisee profits.

Based on a new agreement, franchisees will now have more input on both the pricing of Value Menu items and the duration of special deals.

The agreement is part of an attempt by Burger King's new private-equity owners, 3G Capital, to listen to and address the concerns of franchisees. "We saw this as an opportunity to resolve our differences and move forward," Steve Wilborg, Burger King's president of North America, told Reuters. "Our system is 90 percent franchised and it's important for our franchisees to win."

While value promotions are often sure-fire traffic-boosters, many of these items are priced below cost -- an issue for many of the 7,550 Burger King restaurants in the United States and Canada, who are already concerned with the rising costs of food such as beef, cheese and wheat.

-=Chipmunk=-

 

[DocApocalypto]

Ive thought about this too. If you had a good manager that you could trust, it might be worth doing. I've thought about doing this with a cousin who has loads of food service experience.

There are certain fast food places that ALWAYS have a line out the parking lot.

Chick-fil-a
In and Out (they are moving east, but not sure if franchising)
Five Guys

 

[Sonny Forelli]

a bunch of self made people from their own creativity going into a 'lucrative' totally controlling arena?

strikes me as really odd.

Play commercial real estate right (ie a little strip mall) and test multiple brick and mortars while having your other B&M tenants pay your rent and mitigate risk of leases which will, always be, PERSONALLY backed with high chance of failure in a B&M business.

This would be a much better idea. Then test whatever you want- supplement shop, coffee shop, etc etc etc.

Franchises, I don't get why they're attractive for those who know how to do the hardest portion of running a business - branding, acquisition and retention of customers and split testing and tracking various strategies.

Strange...

 

[craigmc]

a bunch of self made people from their own creativity going into a 'lucrative' totally controlling arena?

strikes me as really odd.

Play commercial real estate right (ie a little strip mall) and test multiple brick and mortars while having your other B&M tenants pay your rent and mitigate risk of leases which will, always be, PERSONALLY backed with high chance of failure in a B&M business.

This would be a much better idea. Then test whatever you want- supplement shop, coffee shop, etc etc etc.

Franchises, I don't get why they're attractive for those who know how to do the hardest portion of running a business - branding, acquisition and retention of customers and split testing and tracking various strategies.

Strange...

My sentiments exactly. Owning the property is much better than running the business. Less hands on and whole lot less headaches. Something goes wrong get your lawyer on it and take a break.

Rental property is a WHOLE lot easier to manage. Trust me I know....

 

[Andrew Scherer]

Solid advice from FTC and a generous offer at the end. +rep.

 

[jhindi]

Buddy of mine just sold his gas station. He'd locked into a 10 year franchise agreement when he purchased the place so he couldn't make the changes needed to be profitable. He started out great - but we all know that gas prices have sucked for the last few years. It hurts the stations too.

He was losing money hand over fist for two years.

Why?

He had to buy the gas from the company. When a chain gas station opened up down the street and was selling gas 14 cents a gallon cheaper than he could buy it for.

He got a crap load for the land when he sold it so he broke even. But imagine owning a business for 7 years and working for free for 7 years.

Almost all gas franchises don't give a fuck about what promotions you do in your store. As long as you keep your store to their standards (which basically means your store is kept clean, and customer service is good, they do 'mystery checks' once a quarter.) then there are no problems.

Gas prices are also set by the gas station operator. Everyday you get a new price which varies by brand (Chevron, Mobil, BP etc) and fluctuates with the price per barrel of oil (the industry term for this is rack price). The gas is never supplied directly from the branded company (ex. Chevron), but from a jobber (a jobber usually has multiple gas stations and contacts with the major companies), so the jobber typically adds between 0.015-0.025 to the rack price. Then you add the taxes, credit card fees and your profit to the price and that is how the price of gas is set.

EX. 2.75(rack price per gallon) + 0.57(taxes) + 0.02(supplier fee) = $3.34(your cost) .

Industry avg. profit per gallon is around 0.10-0.15, and 0.15-0.20 for diesel. There are many factors to this like location, competition, time of the year etc. There are also days where you sell at cost.

Currently, since the price of oil keeps going down, our profit is averaging 0.30 per gallon.

It really hurts when a major chain store opens shop because they have the ability to suck all the traffic in.

Your friend must have been doing low volume. If a gas station is doing decent volume then he could have went to a different gas supplier and they would buy out the contract, rebrand the station and give you some money on top. It's not easy to compete with a major chain, but it's very possible if your store is big enough...

 

[cheshire]

Mcdonalds I hear requires 1 million in liquid cash before they will even talk to you.

Checked into this a few years ago. You need to have liquid assets in excess of $10 million. A single, small (no playground) free standing Mc D's starts at a little over $1 million to be built, Mc D's determines the location of your restaurants and buys the property, you pay them rent on this property. The key to Mc D's success is that they own all the property, some of the most sought after pieces of real estate in the world.

If you just have to buy a fast food franchise get a Chick-fil-a. The 2 in my city are busy from open to close. The drive through line wraps around the building and they have people standing outside taking orders and calling them in before you get to the ordering box. It's ridiculous.

 

[crackp0t]

Checked into this a few years ago. You need to have liquid assets in excess of $10 million. A single, small (no playground) free standing Mc D's starts at a little over $1 million to be built, Mc D's determines the location of your restaurants and buys the property, you pay them rent on this property. The key to Mc D's success is that they own all the property, some of the most sought after pieces of real estate in the world.

If you just have to buy a fast food franchise get a Chick-fil-a. The 2 in my city are busy from open to close. The drive through line wraps around the building and they have people standing outside taking orders and calling them in before you get to the ordering box. It's ridiculous.

I'm said more than 100 times I want to open a Chick-fil-a here in vegas. It would be like printing money.

 

[crackp0t]

Checked into this a few years ago. You need to have liquid assets in excess of $10 million. A single, small (no playground) free standing Mc D's starts at a little over $1 million to be built, Mc D's determines the location of your restaurants and buys the property, you pay them rent on this property. The key to Mc D's success is that they own all the property, some of the most sought after pieces of real estate in the world.

If you just have to buy a fast food franchise get a Chick-fil-a. The 2 in my city are busy from open to close. The drive through line wraps around the building and they have people standing outside taking orders and calling them in before you get to the ordering box. It's ridiculous.

I just read their website and it seems like they totally fuck you. Basically you're limited to 1 store, because you have to be hands on. I was also reading what a store at a great location can make in a year and based on their restrictions I'd be giving myself a major pay cut =\.

However, I love their food.

 

[REIMktg]

These numbers are amazing.... ly low.

Can you imagine running a McDonalds and making $100,000/mo?

I know small furntiure stores, the little ones next to the big box furniture stores where they clear $30K-$50K per month. granted they do not advertise at all and rely on walk in traffic from the big stores, but the overall investment is minimal.

When I worked at a bank, our bounced check fee income, for the 1 single branch, was over $100,000 per month. (makes me want to re-visit my chex bank ideas - anyone interested?) But hard to believe that we were making more in bounced check fees than the local McDonald's

Crap , what do you need to start a McDonalds? Say, $2M? I really do not know but I thought it was a couple million between the land, building, equipment, etc. I can buy 40 houses at $50,000 each and collect an easy $28K net of expenses. And that is with zero hassle and a property manager to care for it all. Not to mention the potential for capital growth.

I think the numbers in this thread are somehow off a bit.

 

[dsiomtw]

Boggles my mind why any successful IM'er would even think about franchises or other brick and mortar stuff. I guarantee you it's a lot fucking easier to make X online than it is offline, and safer too. This of course ignores any special skills or interests you have ... obviously if you hate online marketing and you love the idea of owning a chik-fil-a then go for it. But from a financial and lifestyle standpoint, making the same money online is a hell of a lot easier, safer and quicker. Just do IM for X years, make the money you want to make, then retire ... simple. Absolutely *anyone* with a good head on their shoulders can make 10 million (insert your number) online over a period of time - the same is NOT true offline.

 

[jhindi]

Boggles my mind why any successful IM'er would even think about franchises or other brick and mortar stuff. I guarantee you it's a lot fucking easier to make X online than it is offline, and safer too. This of course ignores any special skills or interests you have ... obviously if you hate online marketing and you love the idea of owning a chik-fil-a then go for it. But from a financial and lifestyle standpoint, making the same money online is a hell of a lot easier, safer and quicker. Just do IM for X years, make the money you want to make, then retire ... simple. Absolutely *anyone* with a good head on their shoulders can make 10 million (insert your number) online over a period of time - the same is NOT true offline.

This is the same mentality I used to have.

There are MANY IMers with a good head on their shoulder that will never see 10 million. It's eaiser said than done. You can be doing good for 1, 2, 3, 4 years then something happens and you are back to square 1. Some will be able to recover, and some will have to go work at McDonalds.

If you made enough money, why not take some of it and invest in offline businesses? If you are currently making bank online, why not take 50% and invest in different offline businesses that you have a passion for? It can't hurt. It's always good to have a diversified portfolio. At least if your IM biz goes under, you will still have some income from your offline businesses.

 

[dsiomtw]

You can be doing good for 1, 2, 3, 4 years then something happens and you are back to square 1. Some will be able to recover, and some will have to go work at McDonalds.

This is complete nonsense if you own and/or operate a real business. I'm not talking about just promoting bullshit acai berry rebills as an affiliate.

If you made enough money, why not take some of it and invest in offline businesses? If you are currently making bank online, why not take 50% and invest in different offline businesses that you have a passion for? It can't hurt. It's always good to have a diversified portfolio. At least if your IM biz goes under, you will still have some income from your offline businesses.

I'll tell you why - because that shit is risky and/or takes up a lot of time. I can make unlimited amounts of money online (within reason) with literally zero measurable risk. Why the fuck would I want to invest in some stupid fast food joint? Unless my goal was to build a McDonalds empire and own 50 of the damn things, there is no point.

 

[ebookman]

If you made enough money, why not take some of it and invest in offline businesses? If you are currently making bank online, why not take 50% and invest in different offline businesses that you have a passion for? It can't hurt. It's always good to have a diversified portfolio. At least if your IM biz goes under, you will still have some income from your offline businesses.

Totally agree, IM imho is a tricky business, there are too many variables thats simply out of my control. So when you're making money with IM, it'd be wise to invest in something offline, it's like a secondary income income your primary is down for an extended period of time.

 

[jhindi]

This is complete nonsense if you own and/or operate a real business. I'm not talking about just promoting bullshit acai berry rebills as an affiliate.

I'll tell you why - because that shit is risky and/or takes up a lot of time. I can make unlimited amounts of money online (within reason) with literally zero measurable risk. Why the fuck would I want to invest in some stupid fast food joint? Unless my goal was to build a McDonalds empire and own 50 of the damn things, there is no point.

I understand now, you don't like to take risk or work hard? There's always risk in any business, online or offline. If you have a business model where you don't have to work hard, has 0% risk and will be around in 10 years then I salute you.

I believe that you should invest some money offline JUST IN CASE something happens...Like I said, if you are making so much money online, it's good to have something offline. You don't necessarily have to open a McDonalds, but what about owning some commercial property? What about rental properties? These are all solid investments that require little work.