In 1986, Jerry Murrell came up with a unique proposition for his sons: “The boys could go to college, or he could use their education money to start a restaurant.” Jerry was concerned with keeping the family together and had the idea that they would run this business together.
It didn’t take much convincing to get the boys to start a business in lieu of going to college. In 1986, the first Five Guys was opened in Arlington, Virginia for a little less than $70,000. It was in the middle of nowhere, there was no parking and no place for customers to sit and eat.
Eventually, they opened a few more restaurants, but their biggest decision came in 2002. By then there were five restaurants, all in Northern Virginia. Murrell was against franchising, but his sons really started pushing for it. Around that time the family met Mark Mosely, former Washington Redskin, and that relationship led to the first franchisee. From there, word spread quickly and Five Guys was on to becoming the largest “better burger” franchise in the US.
Today, there are over 1,300 locations, and the franchise has added around ~50 stores a year for the last few years.
So you want to be a part of the largest and fastest growing “Better Burger” chain in Five guys but wondering what it costs? We reviewed the franchise disclosure document and found that the typical restaurant is 2,000 to 3,000 square feet, and the estimated initial investment cost was between $306,200 and $641,250. This includes an initial franchise fee of $25,000 for the first location and $75,000 for each location thereafter.
How Much Money Can you Make as a Five Guys Franchisee?
So you have shelled out somewhere between $300,000 to $600,000 (let’s call it $450,000 for our math) then how much money can you expect to make? Well, according to the FDD and multiple other reports, the average Five Guys location does around $1,320,000 in sales and roughly 18% EBITDA margins. That equates to roughly $237,000 in profits per location.
So is $237,000 a good return? Well, on a $450,000 build out cost that equates to a 53% return on capital. These margins are much higher than many other restaurant investments, but you will need to decide if the size and return on this investment is right for you.
Five Guys Estimated Initial Investment Costs
As mentioned, the estimated initial investment cost for a Five Guys location ranges $306,000 to $641,000. Here is how those costs break down:
- Initial Franchise Fee: $25,000 (Initial Term 10 Years)
- Development Fee: $50,000 per restaurant ($125,000 in Alaska, Hawaii, or Puerto Rico)
- Leasehold Improvements: $100,000 to $300,000
- Lease Payments: $7,500 to $20,000
- Equipment: $55,000 to $105,000
- Signage: $6,000 to $20,000
- Initial Inventory: $10,000 to $15,000
- Architectural/Engineering: $7,000 to $25,000
- Electronic Cash Register: $15,000 to $25,000
- Facsimile Machine: $350 to $500
- Travel, lodging for initial training: $100 to $5,000
- Business Supplies: $4,000 to $8,500
- Business Licenses and Permits: $5,000 to $15,000
- Delivery and Catering Expenses: $0 to $1,000
- Insurance Deposits and Premiums: $750 to $1,250
- Additional Funds for first 3 Months: $20,000 to $25,000
- Total: $306,200 to $641,250
Royalties, Advertising and Other Ongoing Fees
Like other franchises, the major costs paid back to the franchise system include royalties and advertising costs. Here is the breakdown of those ongoing expenses:
- Royalty Fee: 6% of Gross Sales (8% if located in Alaska, Hawaii, or Puerto Rico)
- Creative Fund: Up to 2% of Gross Sales (2% currently)
- Local Advertising: Not less than 2% of Gross Sales
- Cooperative Advertising: Max of 1.5% of Gross Sales (credited to local advertising)
Here is the type of thing you can expect from your advertising dollars: