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 understand anybody who owns a Subway, how a lot do they make month-to-month? Or if you understand anybody who owns a number of 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 an excellent funding. Then, over the following 15+ years, they continued responding, layering questions on prime of feedback on prime of compliments like, effectively, like an enormous Subway sandwich:

They mentioned and debated all the things 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 over time as scores of neighborhood members—Subway franchise house owners, Subway managers, Subway lovers, Subway haters, you identify 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 info we may. We additionally needed to put Subway store possession within the context of franchising general.

However, first, what about that unique 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 income. For those who’re trying to purchase an current Subway franchise, you could 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.

Actually, 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 type 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 retailers. 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 could offer you the precise data of that outlet. For those who obtain some other monetary efficiency info or projections of your future revenue, it’s best to report it to the franchisor’s administration. …”

Profitability Estimates from Posters

In responses to the unique publish in 2006, folks figuring out themselves as Subway franchisees or Subway workers accustomed to franchise operations supplied numerous revenue estimates.

Some mentioned franchisees ought to anticipate to see 20% revenue margins. Tightly managed outlets can push 25% money circulation, and ones with weaker operations may clear solely 15% a yr.

Meaning a location on the excessive finish of the gross sales chart may throw off $150,000 a yr 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 if you happen to 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 every week in gross sales, you`ll make about $10,000 a month revenue.  Take into account, this isn’t straightforward and most Subway house owners 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 below are both flawed 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 little bit shy of $8,000/week.  So for simple spherical numbers let’s say the common retailer does $400k/yr.  It’s comparatively straightforward to tug 20% revenue if you happen to control the enterprise.  I averaged 22.63% for the primary quarter this yr and I used to be in my shops a mean of 10 hours or much less per week, so 20% will not be that arduous.  However for the next estimate, let’s use 20% common revenue.
You probably have a retailer that’s merely common it’s best to revenue within the ballpark of $80k/yr.
Now let’s say you had been fortunate sufficient to get an ideal 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 vitally doable), effectively, you need to be making in extra of $150k per yr.
Now, one or two shops are usually not going to make you a multi-millionaire, however you may make a snug residing with out a lot of a time funding.

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Different posters pushed again, suggesting that income 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 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 2024 buying energy is fraught given the current excessive inflation and the specificities of meals prices and the restaurant enterprise. However a straight conversion based mostly on common inflation would put that vary of earnings at $42,000-$225,000 in right now’s {dollars}.

So, How A lot Do Subway Franchise Homeowners Make?

So, how may we estimate right now’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 based mostly on whole gross sales, Subway is correct there battling for the highest spot by variety of retailers (virtually 37,000 shops worldwide in 100 international locations, with about half of these in the USA).

On common, a typical Subway retailer will gross about $420,000 a yr, based mostly on Subway’s personal figures and trade 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 really decreased for a lot of the 2010s, till a turnaround in 2021-22.

So, if our working quantity is $420,000 a yr in product sales, the place does that cash go?

(Subway does boast among the many lowest begin up prices for franchised retailers. However we’ll take 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 contains different small, recurring charges as effectively, they usually’re listed in that disclosure doc. However the massive 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” contains all gross sales of each type 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 have to submit signed types to permit us to deposit drafts in opposition to 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 operating a meals franchise. You’ll have lease and utilities, after all, or different bills equivalent to property taxes and constructing upkeep if you happen to’re fortunate sufficient to personal the property. In case your Subway goal retailer is in a non-traditional location, you may 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 abilities 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 prone to account for the most important chew of your bills. Within the Subway franchise system, house owners should purchase from Subway-approved suppliers.

Subway cites high quality management and buying energy because the positives of this association, and a few house owners of Subway franchises contributing to “The Subway Publish” 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 might supply higher components at a fairer worth 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 can even rely upon location and the quantity of competitors, together with from extra places within the Subway household.

Franchisees have complained when Subway grows its retailer depend and counsel that Subway generally pushes for systemwide income development over the account well being of particular person franchises. As an alternative of contemplating their present Subway franchises, they push new retailers 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 every 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 mentioned 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’d additionally counsel financing your gear as an alternative of leasing. The typical Subway lease comes out to +20% curiosity the place as a conventional mortgage can be within the 5-8% vary. Hope this helps!”

Guidelines for Subway Franchisee

So far as operating the enterprise, remember that as a franchisee your freedom to function is constrained by the phrases of the settlement with the father or mother 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 web site choice group, 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 appliance course of however continued assist as you use your restaurant.”

Our StartupNation neighborhood posters had blended views on these Subway DAs, as they known as them. One poster gave this recommendation relating to 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 area 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 large variation amongst areas, with some native improvement brokers being useful, and a few are downright horrible.”

Shopping for A Subway Franchise: Preliminary Franchise Payment

So, earlier than you even get to the stage of being profitable from a Subway, it’s a must to make in preliminary funding within the firm. Fortuitously, if you happen to’re decided to pursue a Subway franchise, the corporate operates on a comparatively low funding enterprise mannequin, and new or current franchises are sometimes obtainable.

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

Subway Franchise Whole Funding

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

Remember the fact that any transforming or renovation you do to your house should conform with Subway franchise pointers. Some franchise house owners have ready their house forward of time solely to search out out that Subway’s retailer design group didn’t think about them configured correctly for franchised retailers.

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

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

1. It’s one factor to think about proudly owning your personal enterprise, however if in case you have by no means finished it, it’s best to assume onerous about all of the obligations you’re taking up.
2. Operating a meals franchise is a grind. And despite the fact that Subway gives coaching courses and assist with issues like stock administration duties, the challenges of labor shortages and competitors are actual.
3. The advantage of Subway will not be in proudly owning a Subway franchise a lot as proudly owning a number of Subway franchises. Posters say that multi unit house owners get probably the most out of the expertise.

On prime of that, it’s best to look onerous 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 mentioned, 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 underneath one proprietor.

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

Within the meantime, Subway is transferring 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 a protracted strip and sufficiently big for 4 folks, in addition to footlong churros and pretzels.

In saying its plans to promote itself earlier in 2023, Subway emphasised that, coming off a powerful 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 in opposition to its multi-year transformation journey, which features a deal with menu innovation, modernization of eating places and enhancements to its general visitor expertise,” the corporate mentioned.

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 robust model recognition.
2. Subway gives franchisees with coaching, ongoing assist, and entry to sources equivalent to 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 robust 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 often, 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 means to create distinctive menu choices.
3. Competitors from different quick meals retailers is intense, and even when Subway is now not the biggest restaurant chain on this planet by variety of retailers, some franchisees say there are nonetheless too many new franchises popping up.
4. The quick meals trade general has excessive worker turnover, and Subway is not any exception.
5. The framework and guidelines that apply to Subway franchise house owners may 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 may be mentioned, after all, for franchising usually.

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

Franchising generally is a nice alternative. However it needs to be best for you.

Listed here are 9 issues to find out about franchising. We based mostly this listing 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 status. Search for purple flags equivalent to lawsuits, chapter, or damaging 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: A very good franchisor ought to present assist in areas equivalent to coaching, advertising, and operations.
4. Think about the franchise’s profitability: Take 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: Be sure that the franchise’s goal market aligns with your personal pursuits and strengths.
6. Analysis the competitors: Take 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. Be sure you and have a plan to mitigate the dangers.
8. Speak to different franchisees: Get an concept 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 advisor. They’ll present precious insights and assist you to 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 again and again. Hundreds of Subway franchises have opened, closed or modified arms 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 common revenue of a Subway restaurant proprietor?”—was by no means answered right 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 have now supplied a transparent mind-set about Subway franchise possession and a few helpful tips on franchising usually.

This text was up to date in January 2024.