The Rally’s Franchise is part of one of the largest chains of double drive-thru restaurants in the United States. Originally, Rally’s served the Midwest while it’s sister Checker’s served up food in the Southeast. Both of these concepts merged together in 1999.
Today there are over 500 Rally’s locations across the US and franchising has been a huge part of that growth. The Rally’s name has stayed on stores in the Midwest as well as in California.
Are you wanting to open a Rally’s franchise store but wondering what it costs? We reviewed the Rally’s Franchise Disclosure Document and found that the average estimated cost to begin operation of a Rally’s restaurant is $529,900 to $817,000 for a new modular design single drive-thru restaurant. This includes the initial franchise fee paid to the franchisor in the range of $5,000 to $45,000 (standard franchise fee is $30,000)
The ongoing royalty fee paid to the franchisor is 4% of net sales. The ongoing advertising expenditure requirement is equal to 4.5% of your net sales. The ongoing fee for national production fund contribution may be required to pay up to 5% of net sales. The ongoing cooperative advertising is determined by your local coop and is credited towards your 4.5% advertising expenditure.
How Much Money Can a Rally’s Franchise Owner Make?
So you are investing $600,000 to build a new Rally’s Franchise store but wondering more importantly how much you will make? According to the FDD and industry reports, the average Rally’s brings in around $950,000 and makes a 15% EBITDA margin or $165,000 in profits per location before paying above store general and administrative expenses.
Is Rally’s a Good Investment?
We don’t offer financial advice, so you should work with a financial adviser or accountant to determine a wise investment, but here are the parameters for how to view the investment.
First, we will take an average investment based on the range of initial investment cost. That average comes out to $673,000 (average of $529k and $817k). The next stat we need is the profitability. The average EBITDA of a new build Rally’s is estimated to be around $165,000 (pre-G&A expenses). This amounts to 15.4% of sales.
Dividing the store EBITDA ($165,000) by the estimated investment ($673,000) comes out to a 24.5% return on investment. (This assumes using no debt/leverage)
When deeming an investment “good” or “bad”, you must view the investment through other opportunities. If your other opportunities have lower than a 24.5% return the a Rally’s investment may be a good investment for you.
Here are the Net Sales that Rally’s reports in their FDD:
Rally’s Estimated Initial Investment Cost
The Rally’s Initial Investment Cost for a single restaurant ranges from $529,900 to $817,000 according to the franchise disclosure document (FDD). The largest costs are attributed to the restaurant building costs and the equipment placed into the restaurant. Here is how the total investment breaks down:
- Initial Franchise Fee: $20,000 – $30,000
- Initial Advertising Deposit: $5,000
- Restaurant Building Costs: $297,000 – $397,000
- Restaurant Building Shipping: $8,900 – $55,000
- Restaurant Equipment & Technology: $140,000 – $210,000
- Signage including Menuboards: $18,000 – $45,000
- Inventory: $1,000 – $5,000
- Additional Funds: $40,000 – $90,000
- Total Estimated Initial Investment Cost: $529,900 – $817,000
Rally’s Net Worth Requirement
Maybe you can find the money to build a new Rally’s, but along with that Rally’s is also going to check out your net worth. The current net worth requirement to become a Rally’s franchisee is a $750,000.
Rally’s Number of Locations
As of the end of 2018, there were 577 Rally’s Locations. 460 Rally’s locations are franchised, and 125 are Company-owned. Here is how the Rally’s restaurant location numbers break down:
Rally’s Royalty
The ongoing royalty fee paid to the franchisor is 4% of net sales. This amount is paid semi-monthly, on or before the 5th and 20th day of each month.
Rally’s National Advertising Expenditure Requirement
The ongoing national advertising expenditure requirement is equal to 4.5% of your net sales. This must be spent on advertising and promotion during each of the four fiscal quarters. This includes amounts paid to NDP (other than Initial Advertising Deposit), advertising cooperatives and amounts generally expended by you for advertising your franchised restaurant.
Rally’s National Production Fund Contribution
The ongoing national production fund requires that you may contribute up to 3% of your net sales. This is due at the same time as royalty payments, on or before the 5th and the 20th day of each month. This amount is also credited toward your 4.5% advertising expenditure requirement. Your contribution rate is subject to change from time to time.
Rally’s Cooperative Advertising Fees
The ongoing cooperative advertising amounts are determined by your local or regional advertising cooperative. This is due monthly, on the 5th day of each month. Payments to the local or regional advertising cooperatives are credited towards your 4.5% advertising expenditure.
