The Financial Breakdown of a McDonald’s Franchise

Starting this brand restaurant is a dream of many aspiring fast food franchise owners. We will reveal how much the McDonald’s franchise investment costs and what fees franchisees can expect to pay. Also, we will show data of average gross sales per location to determine McDonald’s franchise owners’ salary.

Key Takeaways:

McDonald’s initial franchise fee can go up to $45,000, with a total investment range cost between $1,366,000 and $2,450,000
Investors who launch new McDonald’s are required to lease the restaurant real estate from franchisor directly and to pay rent from its restaurant’s gross sales.
This franchisor charges franchisees royalties that are, in total, 8% of monthly gross sales.
McDonald’s franchises in Traditional Locations have produced on average $3,487,000 of Gross Sales in 2021 per location.
The McDonald’s franchise owner of the average earning location can expect to make a $174,350 salary per year with a 5% profit margin.
Franchisor demands from the owner personal on-premises supervision, which means that franchisees must actively participate in the work of their restaurant.

How Much Does The McDonalds Franchise Cost

The total investment cost to start a McDonald’s restaurant franchise is between $481,000 and $2,450,000, with Initial Fee, which ranges from $500 to $45,000.

The exact total initial investment cost will depend primarily on the type of franchise that investors opt to open!

There are available for purchase four types of McDonald’s:

Traditional:freestanding buildings, storefronts, food courts, and other locations.
Satellite:locations in strip centers, airports, universities, shopping malls, hospitals, Walmart, etc.
Small Town Oil:restaurants that share building space with a convenience store and have a fuel station located outside
Small Town Retail:locations that anchor a small retail center in rural communities.

Starting a McDonald’s franchise in the Traditional Location demand an investment cost between $1,366,000 and $2,450,000 with an Initial Fee of $45,000.

Small Town Oil and Small Town Retail locations demand start capital between $942,000 and $1,640,500 with an Initial Fee of $22,500.

The most affordable option to start McDonald’s franchise is Satellite locations which demand investment costs between $481,000 to $820,500 with an Initial Fee of only $500

List of Initial Investment Costs:

Initial Fee:$0 – $45,000
Real Estate and Building Rent:$60,000 – $313,000 – cost for three month
Signs, Seating, Equipment, and Decor Package:$340,000 – $1,600,000
Opening Inventory:$10,000 – $39,000
Miscellaneous Opening Expenses:$48,000 to $60,000
Initial Training Travel and Living Expenses:$3,000 to $38,000
Additional Funds:$80,000 – $355,000 – Working Capital (first three months
ESTIMATED TOTAL INVESTMENT COST: $481,000 – $2,450,000

McDonald’s as a company will find the location and land and build the restaurant premise on it. Investors, in return, will pay every month from gross revenue a certain amount to the franchisor and will finance the purchase of the signs, trade fixtures, equipment, and other personal property and improvements necessary.

Funding Options To Cover Initial McDonalds Franchise Cost

This franchisor offers a so-called “Operator’s Lease” for each site owned or leased by McDonald’s. It is a standard commercial lease under which the franchisee pays rent for the use of the premises.

This is one of the advantages of becoming fast food franchise owner of an outlet that is operating under this company’s trademarks. However, the franchisor doesn’t offer direct financing for other expenses related to opening, so investors will need to find third-party funding sources.

McDonald’s Franchise Fees

Initial Fee

Investors who launch a new McDonald’s restaurant in a Traditional Location will pay a $45,000 Initial Fee for 20 years of franchise agreement duration, and franchisees of locations that have ten years or less of real estate tenure pay a prorated initial franchise fee based on the term duration.

Franchisees of Small Town Oil and Small Town Retail locations pay $22,500 of McDonald’s initial franchise fee.

Franchisees of Satellite locations are required to pay a $500 Initial Fee. The only exception are franchise owners of the Walmart locations; they pay the exact cost as it is for Small Town Oil and Small Town Retail.

The Initial Fee Refund Options

The initial franchise fee is refunded only if the franchised restaurant construction is not completed within one year of the date the Franchise Agreement is signed. There are no refunds under other circ*mstances.

Royalty Fee

McDonald’s franchise owners pay 4% of their restaurant’s Gross Sales for costs associated with the Royalty Fee. The only exception are franchised restaurants that operate a business in Alaska, Hawaii, Guam, and the Northern Mariana Islands; they pay 4.5% of Gross Sales.

Advertising and Promotion Fee

The advertising and Promotion Fee is 4% of Gross Sales that McDonald’s franchises make, and franchisees must pay it on an ongoing basis during the whole duration of the agreement.

Rent Fee

McDonald’s Rent fee varies and depends on the space, type of location, and the geographical where it is built. However, usually, it will be no less than $30,000 per quarter for new Traditional locations.

Most franchised restaurants’ land and the building are owned by McDonald’s, so franchisees must pay a Monthly Base Rent.

The cost of the rent is based upon the total amount McDonald’s invested in the land’s acquisition and development. Usually, it is paid as in a certain percentage of gross sales.

The new franchise business owners of these restaurants can expect to pay at least 10% of gross sales for costs associated with renting restaurant premises. In some cases, it is even higher. So this will be one of the highest operating costs that every new owner will need to bear.

Annual Fees

There are dozens of “smaller” McDonald’s fees that, when all added up, cost exceed the $10,000 that each franchisee who launch new restaurant will need to pay to McDonald’s corporation every year!

That fees are:

1. Point of Sale (POS) Fee

$2,600 license fee (one-time Fee)
$937 per year: Paid for software maintenance, integration, and localization of store system platform.

2.McDelivery POS Integration Fee

$275 per year: Paid for the support and maintenance of McDelivery orders integration into POS software.

3. Global Mobile App / Digital Capabilities Fee

$900 integration fee (one-time Fee)
$2,956 per year: Paid for the maintenance, support, hosting, integration, and localization of digital technology software.

4. Self-Ordering Kiosk Fee

$1,500 one-time licensing fee
$500 integration fee (one-time Fee)
$574 per year: Paid for kiosk technology software maintenance, integration, and localization.

5. Self-Ordering Kiosk Accessibility Fee

$150 per year: Paid for self-ordering kiosk accessibility and annual software maintenance

6. Retail Digital Integration Fee

$500 integration fee (one-time Fee)
$214 per year

7. Back Office Integration and Enhancements Fee

$500 integration fee (one-time Fee)
$679 per year: Paid for the back office integration and enhancements to the store system platform.

8. Payments and Fraud Management Fee

How Much Is McDonald’s Franchise Profit

The McDonald’s franchises are one of the highest-earning franchising systems if we look average gross revenue that they make per location. However, the owner’s profit margin is pretty low compared to similar franchising concepts.

So how much a McDonald franchise make a profit for its owner will depend on that how much is possible to make in gross revenue per year!

McDonald’s Average Gross Revenue Per Franchise Location

McDonald’s franchises in Traditional Locations have produced on average $3,487,000 of Gross Sales in 2021 per location. The highest gross earning location has made $13,625,000, and the lowest has had sales of $680,000.

Profit Margin

The McDonald’s franchise owners can expect that their franchised restaurant will deliver 5% of the profit margin. It means that from every sold product, 5% of its price will stay in the owner’s pocket.

McDonald’s charges franchisees rent between 8.5 percent to 15 percentof revenue, depending on the type of location and other factors. It also collects 8 percent for royalties, so 5% of the profit margin is an objective estimation.

How Much is McDonald’s Franchise Owner Salary

The owner of the average earning McDonald’s franchise can expect to have $174,350 of salary per year from the profit derived from their franchised location.

In 2021, The franchise owner of the highest gross selling McDonald’s had a salary of approximately $680,000, and the lowest earning made $34,000 of profit in 2021.

How much do McDonald’s franchise owner make will depend primarily on the sales level that its franchise location can make per year.

How We EstimateMcDonald’s Franchise Owner Salary

We calculate the owner’s salary according to the McDonald’s franchise disclosure document data. In Item 19 of FDD, this franchisor has revealed data about gross revenue from their traditional locations.

The Franchise Disclosure Document has revealed:

The average annual sales volume of franchised McDonald’s restaurants was $3,487,000 in 2021.
79% of franchised restaurants had yearly sales volumes above $2,600,000.
72% of top McDonald’s franchise owners had annual sales volumes above $2,800,000.
64% of franchise owners had yearly sales volumes above $3,000,000.
The highest annual sales volume in 2021 was $13,625,000.
The lowest annual sales volume in 2021 was $680,000.

The investors must be aware that this franchisor only revealed data from their Traditional locations. There is no data about gross sales that make Small Town Oil, Small Town Retail, and Satellite locations.

Are McDonald’s Franchises Profitable

The sales volume of your McDonald’s restaurant will determine how much profit you will make from your franchised location. If you can make the average sale volume that these franchises usually make, you can expect a good salary at the end of the year.

However, this franchisor is in a slight decline in the number of locations, which means that in the recent year, they closed more places than they have opened in the U.S.

McDonald’s the U.S franchised restaurant number by years:

In 2019 there were 13,229 restaurants
2020 there was 13,185 restaurant
At the end of 2021, there were 12,775

Although in constant decline in the last three years by the number of units McDonald’s as a company has more profit now than ever!

In 2021, McDonald’s total revenue was about $8.87 billion; from that, about $6.09 billion was money they made from leasing real estate and collecting royalties from franchisees.

What are the Requirements to Open a McDonald’s Franchise

Capital Requirement

The franchise applicants need to have Liquid Assets (Cash/Non-Borrow Funds) in a minimum of $100,000 to be approved as a new franchise owner.

Leasing Requirement

Franchisees must lease the restaurant premises directly from McDonald’s and pay the monthly rent to the franchisor. Also, the franchisor chooses the location and negotiates terms of leasing or purchasing the land.

Owner’s participation requirement

This franchisor demands from the owner personal on-premises supervision on a daily basis which means that franchisees must actively participate in the work of the franchised location.

So opening this franchise will not be a good choice for investors who are searching for a business that can be a passive income source.

McDonalds Franchise Agreement Duration

The franchise agreement for McDonald’s that is opened in Traditional Locations is usually 20 years. On Satellite, Small Town Oil, and Small Town Retail locations, franchise owners usually sign agreement terms of at least ten years.

Are All McDonalds Franchises

Approximately 95% of all U.S. McDonald’s restaurants are franchised to independent franchisees, and about 5% are corporation-owned restaurants.

Summary

This McDonald’s franchise business review has revealed all data and facts that potential investors must know before investing a huge sum of money in opening this brand outlet!

Although the owner’s profit margin is pretty low, starting this franchise can be profitable because they deliver one of the highest gross sales compared to all other franchising systems.

The Financial Breakdown of a McDonald’s Franchise – Franchise Theory (2024)