Today, McDonald’s is the world’s largest restaurant chain by revenue, serving over 69 million customers daily i over 100 countries and to greater than 37,000 locations. Just US sales alone surpassed $40 billion in 2019 according to Restaurant Business Online.
The largest Fast Food company in the world didn’t get its start with the goal to be the biggest in the world. Them company was founded in 1940 as a hamburger stand in San Bernadino, California by brothers Richard and Maurice McDonald. They started out with a simple mission: serve burgers, fries, shakes and drinks in under 30 seconds. At the time, the average wait of restaurants was nearly 30 minutes.
The brothers went on to open a few stores but knew that you had to be heavily involved in the stores to make them successful. A few years later, Ray Kroc came along to partner with the brothers. After a few years of success franchising, he eventually bought out the brothers and continued to grow the brand.
Today, McDonald’s is mostly a franchised restaurant and trades as a publicly traded stock with a market cap surpassing $150 billion.
So what does it cost to open a McDonald’s franchise? We reviewed the McDonald’s Franchise Disclosure Document (FDD), and the estimated initial investment is $1,263,000 to $2,235,000. That investment includes an initial franchise fee of $45,000 and signs, seating and equipment of $$900,000 – $1,500,000. Unlike many other restaurants, franchisees do not own the real estate which is owned and financed by the McDonald’s Corporation.
McDonald’s is the gold standard in the burger franchise business. If you are lucky enough to be chosen, expect and initial franchise fee of $45,000. This is towards the higher end of franchise fees in the restaurant industry. Higher franchise fees are likely deserved though as the higher fees come with higher average sales at their restaurants.
Are you hungry yet? Before we break down the costs and the process of building a burger restaurant, maybe check out how to make the famous fries first!
Estimated Initial Cost
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
What can you expect from your advertising spend? Here are some television commercials from over the years:
Financial Metrics – How much money can you make?
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!