What Is the Common Earnings 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 you already know anybody who owns a Subway, how a lot do they make month-to-month? Or if you already know anybody who owns just a few Subway areas, 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 following 15+ years, they continued responding, layering questions on prime of feedback on prime 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, laws and non-traditional areas.

“The Subway Put up”

“The Subway Put up,” because it got here to be identified at StartupNation, grew into a number of pages over time 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 Put up” and replace any info 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

Nicely, 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 income. For those who’re seeking to purchase an current Subway franchise, chances are you’ll be supplied the precise data of revenue and loss for that particular retailer.

However a brand new location? Future revenue projections? You’ll must do your personal analysis.

In reality, 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 couple of franchisee’s future monetary efficiency or the previous monetary efficiency of company-owned or franchised shops. We additionally don’t authorize our workers or representatives to make any such representations both orally or in writing. Nevertheless, in case you are buying an current outlet, we might offer you the precise data of that outlet. For those who obtain another monetary efficiency info or projections of your future earnings, you need to report it to the franchisor’s administration. …”

Profitability Estimates from Posters

In responses to the unique put up in 2006, individuals figuring out themselves as Subway franchisees or Subway workers conversant in franchise operations supplied varied revenue estimates.

Some stated franchisees ought to count on to see 20% revenue margins. Tightly managed outlets can push 25% money circulate, 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 supplied this recommendation:

The overall rule of thumb is that should you actually push it (work within the retailer your self, maintain meals and labor prices as little as doable, and keep on prime of loss prevention) you may attain a revenue margin of about 25%.  So, if in case you have a retailer averaging $10,000 per week in gross sales, you`ll make about $10,000 a month revenue.  Take into accout, 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 need to make anybody mad, however some issues posted listed below are both unsuitable 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 just a little shy of $8,000/week.  So for straightforward spherical numbers let’s say the typical retailer does $400k/12 months.  It’s comparatively simple to drag 20% revenue should 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% just isn’t that arduous.  However for the next estimate, let’s use 20% common revenue.
If in case you have a retailer that’s merely common you need to revenue within the ballpark of $80k/yr.
Now let’s say you have been fortunate sufficient to get an awesome location and also you retailer does $15k/week (the realm I’m in has a number of shops that do that and rather more in gross sales so it is rather doable), effectively, you ought to be making in extra of $150k per 12 months.
Now, one or two shops will not be going to make you a multi-millionaire, however you may make a snug residing with out a lot of a time funding.

Different posters pushed again, suggesting that income down within the $25,000-$30,000 vary have been widespread and that to make a residing off Subway franchising one needed to personal a number of areas. They warned that until you might construct up your personal enterprise of Subway franchises, you may simply be shopping for a job, and in some instances shopping for a low-paying job.

Changing these 2006 {dollars} to 2023 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 in the present day’s {dollars}.

So, How A lot Do Subway Franchise House owners Make?

So, how may we estimate in the present day’s Subway franchise financials by analysis of obtainable documentation? Nicely, 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 whole gross sales, Subway is correct there battling for the highest spot by variety of shops (nearly 37,000 shops worldwide in 100 nations, with about half of these in america).

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 charge, later.)

Subway Franchise Price: Royalty Charges

Begin with the Subway franchise royalties. The royalty charge is 8% of product sales, whereas the promoting charge is 4.5% of product sales, based on Subway’s Franchise Disclosure Doc.

Like different franchise agreements, Subway’s consists of different small, recurring charges as effectively, they usually’re listed in that disclosure doc. However the large charges are these two that add as much as 12.5% of product sales, and Subway is evident in its documentation about gathering these:

“Product sales” consists of all gross sales of each type constructed from 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 normally Tuesday. You should submit signed varieties 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 should have lease and utilities, after all, or different bills akin to property taxes and constructing upkeep should you’re fortunate sufficient to personal the property. In case your Subway goal retailer is in a non-traditional location, you might need a concession charge as effectively.

Labor prices will rely upon 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 depend in your sandwich expertise to be the distinction maker. If monetary success requires you to take too many shifts behind the counter, you may need to rethink the plan.

Meals prices are more likely to account for the largest chunk 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 Put up” praised the system for serving to them with account well being monitoring and stock monitoring. Others, nonetheless, pleaded for extra flexibility, questioning Subway’s “eat recent” slogan and saying they may supply higher elements 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 also rely upon location and the quantity of competitors, together with from extra areas within the Subway household.

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

Some Subway franchisees complain about different company dictates as effectively. The newest 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%)
• Hire: 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, take into account that as a franchisee your freedom to function is constrained by the phrases of the settlement with the father or mother firm.

In addition to 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 web site choice crew, for instance) and groups that monitor franchise efficiency.

Subway employs what they name a Growth Agent. A Growth Agent, in Subway’s description, is “an area, on-site consultant of the Subway idea” who will “present native assist not solely all through the applying 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: “If you’re contemplating Subway, discuss to current franchisees within the space and ask about their satisfaction with the DA of that space. Growth Brokers are additionally anticipated to make sure franchisees are working inside firm pointers by having discipline reps that examine shops month-to-month. They do rather more than simply open shops.”

Whereas one other poster put it extra succinctly: “There’s super variation amongst areas, with some native growth 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 being profitable from a Subway, it’s important to make in preliminary funding within the firm. Luckily, should 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 web value of $150,000 and liquid belongings, or money available, of $100,000 per location. That’s what’s wanted simply to be thought-about for a Subway franchise function.

Subway Franchise Complete Funding

Then, your preliminary funding begins with the preliminary franchise charge of $15,000. On prime of that, you will want an estimated $207,000 to $477,000 to spend money on your retailer, based on Subway’s personal estimates. Your determine will rely upon such elements as constructing dimension, configuration and placement.

Needless to say any transforming or renovation you do to your house should conform with Subway franchise pointers. Some franchise homeowners have ready their house forward of time solely to search out out that Subway’s retailer design crew didn’t take into account them configured correctly for franchised shops.

So, with all that as fundamental 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 Put up.”

1. It’s one factor to think about proudly owning your personal enterprise, however if in case you have by no means accomplished it, you need to suppose laborious about all of the obligations you’re taking up.
2. Operating a meals franchise is a grind. And though Subway supplies 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 just isn’t in proudly owning a Subway franchise a lot as proudly owning a number of Subway franchises. Posters say that multi unit homeowners get essentially the most out of the expertise.

On prime of that, you need to look laborious 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 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 non-public fairness agency that owns a bunch of different restaurant operators and franchises (together with Subway rival Jimmy John’s.) Roark can pay 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 ought 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 below one proprietor.

The investigation is within the early phases, Politico reported in late 2023, including: “Merger opinions by antitrust regulators can usually 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 asking, “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 saying 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 crew stays dedicated to the longer term and can proceed to execute towards its multi-year transformation journey, which features a concentrate on 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 some extent in favor of turning into a Subway franchisee.

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Listed here 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 clients and powerful model recognition.
2. Subway supplies franchisees with coaching, ongoing assist, and entry to sources akin to advertising and marketing 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 affordable costs.

Cons of proudly owning a Subway franchise:

1. As our discussion board contributors talked about steadily, the Subway franchise royalty charge cuts into the revenue margin.
2. Subway franchisees say menu flexibility doesn’t go far sufficient and that the requirements imposed restrict their potential to create distinctive menu choices.
3. Competitors from different quick meals shops is intense, and even when Subway is now not the biggest restaurant chain on the earth 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 is not any exception.
5. The framework and guidelines that apply to Subway franchise homeowners could be limiting.

Rules of Beginning a Franchise

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

The identical could be stated, after all, for franchising usually.

With that in thoughts, we wish to go away you with one other listing that may assist anybody contemplating a Subway franchise or another franchise.

Franchising could be a nice alternative. But it surely must be best for you.

Listed here are 9 issues to learn about franchising. We primarily based this listing on this text about beginning a franchise and this text about how franchising might help management your dangers.

1. Analysis the franchisor: Earlier than investing in a franchise, analysis the franchisor’s historical past, financials, and repute. Search for purple flags akin to lawsuits, chapter, or destructive opinions.
2. Perceive the franchise settlement: The franchise settlement is a authorized contract that outlines the rights and obligations of the franchisor and franchisee. Perceive all phrases and circumstances.
3. Consider the franchisor’s assist: franchisor ought to present assist in areas akin to coaching, advertising and marketing, and operations.
4. Think about 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 personal 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 all enterprise enterprise, there are dangers concerned in beginning a franchise. Ensure you and have a plan to mitigate the dangers.
8. Speak to different franchisees: Get an thought of the experiences and challenges confronted by different franchisees within the system.
9. Get skilled recommendation: Think about consulting with a lawyer, accountant, or franchise marketing consultant. They’ll present precious insights and provide help to make an knowledgeable determination.

Conclusion

Since touchdown the StartupNation neighborhood discussion board in 2006, “The Subway Put up” has not solely remained related, however it has engaged entrepreneurs and the business-minded repeatedly. Hundreds of Subway franchises have opened, closed or modified fingers in that point, and Subway Eating places has gone by its personal twists and turns.

The unique poster’s query—”What’s the typical earnings of a Subway restaurant proprietor?”—was by no means answered right down to the greenback. However the posters acquired shut, and we hope this text has accomplished the identical for a 2023 reader.

We additionally hope we have now supplied a transparent mind-set about Subway franchise possession and a few helpful recommendations on franchising usually.

This text was up to date in January 2024.