McDonald’s Franchise Cost – Analysis of cost to either buy or build

The initial investment can vary from store to store, but McDonald’s publishes a range of $1,263,000 to $2,235,000. This is inclusive of the franchise fee.

McDonald’s is unique in the franchise space in that they own and control the real estate. Here is how the initial investment breaks down for a single location:

Initial Franchise Fee: $45,000
Signs, Seating, Equipment: $900,000 to $1,500,000
Opening Inventory: $20,000 to $35,000
Misc Opening Expenses: $45,000 to $55,000
Travel and Living Expenses: $3,000 to $35,000
Additional Funds: $250,000 to $355,000
Total: $1,263,000 to $2,235,000
McDonald’s Net Worth Requirement
Maybe you can find the money to build a new McDonald’s, but along with that McDonald’s is also going to check out your net worth. McDonald’s requires each franchisee applicant to have a minimum of $500,000 of unencumbered liquid assets available to invest in a McDonald’s prior to entering into the franchisee application process.

Other Ongoing Fees
The most typical ongoing fees in any franchise concept include royalties and advertising dollars paid back to the franchise. McDonald’s is fairly middle of the road in these fees. Given the number of store in the United States, these can amount to massive advertising dollars to be spent.

Service Fee (Royalty) 4% of Sales
Advertising and Promotion: Not less than 4% of Sales

It is usually important to understand the investment in any restaurant concept. More often, people are interested in the return that you can get on that investment.

From a top-line revenue perspective, McDonald’s is at the top of the food chain, averaging $2,500,000 for each location. Many other burger concepts are lucky to do in the ballpark of $1,500,000. That is 66% higher than the average fast food burger joint!

Other important financial metrics at the store level include a cost of sales of 29.4% and an EBITDAR margin of 23.5%. With average rents in the ballpark of 9-10%, that equates to EBITDA around 12%.

In the end, you can expect store-level EBITDA to be ~$300,000 per location. That isn’t too shabby for flipping burgers!