Restaurant Franchise Costs: What You Need to Know

Opening a restaurant franchise can be an exciting business opportunity, but it’s essential to understand the costs involved before taking the plunge. Restaurant franchise costs can vary widely depending on factors like the brand, location, and type of restaurant. 

In this article, we’ll break down the typical expenses, process, and key considerations for buying a restaurant franchise and highlight one successful brand, Perkins.

How Much Does It Cost to Open a Franchise Restaurant?

The total investment required to open a franchise restaurant typically ranges from $100,000 to $2 million. However, some franchises may have lower or higher costs depending on their business model and requirements. 

Here’s a breakdown of the main expenses you can expect:

1. Initial Franchise Fee

The franchise fee is a one-time payment that grants you the right to use the franchisor’s brand, systems, and support. The initial franchise fee for restaurant brands usually ranges from $30,000 to  $50,000, though it can be even higher for some high-end franchises.

2. Real Estate and Construction Costs

One of the most significant expenses is often related to the physical location of your restaurant. This can include:

• Purchasing or leasing property.
• Construction or renovation costs.
• Leasehold improvements.

The real estate and construction costs can range from $100,000 to over $1 million, depending on the location and size of the restaurant.

3. Equipment and Inventory

You’ll need to purchase kitchen equipment, furniture, and initial inventory. The equipment and inventory costs between $50,000 and $300,000.

4. Working Capital

It’s crucial to have enough working capital to cover operating expenses until your restaurant becomes profitable. The working capital can range from $25,000 to $150,000 or more.

5. Ongoing Fees

In addition to startup costs, you’ll need to budget for ongoing fees, including:

• Royalty fees (typically 4-12% of gross sales).
• Marketing fees (usually 1-4% of gross sales).
• Insurance costs.
• Employee wages and benefits.

The Process of Buying a Restaurant Franchise

Thinking of buying a restaurant franchise? Here are some essential steps to follow:

• Research and self-assessment: Evaluate your interests, skills, and financial resources.
• Choose the right franchise: Consider factors like brand reputation, support systems, and alignment with your goals.
• Review the Franchise Disclosure Document (FDD): This document provides crucial information about the franchise opportunity and your rights and obligations.
• Secure financing: Explore options like loans, personal savings, or partnerships.
• Complete the franchise agreement: Work with a franchise attorney to review and finalize the agreement.
• Attend franchisee training: Most franchisors provide comprehensive training programs.
• Build or renovate your location: Prepare your restaurant according to the franchisor’s specifications and prepare to launch!

Pros of Buying a Restaurant Franchise

1. Established Brand and Customer Base

One of the key advantages of owning a restaurant franchise is instant access to an established brand and customer base. You can leverage the reputation, trust, and loyalty built by the franchisor over years, significantly reducing the time and effort required to establish your own brand identity and attract customers.

2. Demonstrated Business Model

Franchises operate based on a tried-and-tested business model that has already been successful in the marketplace. This can give you a significant advantage over starting a new restaurant from scratch, helping you avoid common pitfalls that often plague new restaurants.

3. Marketing Support

Many franchisors provide their franchisees with access to national advertising campaigns and promotional materials. This marketing support can be invaluable for new restaurant owners who may not have the time or budget to invest heavily in marketing.

4. Purchasing Power

Franchisees often benefit from lower costs due to the franchisor’s economies of scale in purchasing food and supplies. For example, a franchisor with multiple locations may get discounts from suppliers that individual restaurant owners would not be able to access on their own.

5. Training and Support

Franchisors typically provide comprehensive training and ongoing support to their franchisees. This can include training on everything from food preparation to marketing and customer service, as well as access to resources like manuals, videos, and online portals.

Cons of Buying a Restaurant Franchise

1. High Initial Investment and Ongoing Fees

Investing in a restaurant franchise often requires a significant upfront capital investment. This includes franchise fees, royalty fees, and ongoing operational costs, which can add up quickly and affect initial profitability.

2. Limited Independence and Creativity

Restaurant franchises operate under predetermined rules, guidelines, and brand standards. This can limit your freedom to exercise creativity and adapt the menu or operational processes to local preferences. Franchisees must adhere to established systems and policies, which may restrict innovation and autonomy. 

3. Potential for Brand Reputation Damage

While an established brand can be advantageous, it also means that negative publicity or customer dissatisfaction at other franchise locations can reflect on your restaurant. This can potentially affect customer perception and your restaurant’s performance.

4. Limited Territory and Market Saturation

Franchisors often allocate exclusive territories to their franchisees, which can limit the number of potential customers. In densely populated regions, this can result in market saturation and intensified competition among franchisees.

How Much Does it Cost to Open a Perkins Restaurant?

In 1957, Perkins started as a pancake house in Cincinnati. Founded by brothers Matt and Ivan Perkins, what was originally known as Smithies Pancake House quickly gained popularity for its pancakes and warm hospitality. Inspired by the success and positive response from the community, the brothers decided to expand their venture through franchising in 1958. Today, there are nearly 300 company-owned and franchised locations in 32 states and two Canadian provinces.

Total Investment Range

The total investment estimate to open a new Perkins franchise ranges between $1,183,715 and $3,290,465. For an accurate and complete list of costs please see our Franchise Disclosure Document.

Key Costs

Initial Franchise Fee:  The initial franchise fee is $40,000

Ongoing Fees

• Royalty Fee: 4% of net sales.
• Advertising Fee: 3% of net sales.
• Computer and Technology Fees: $850 per year for helpdesk services.

Financial Requirements

Perkins requires potential franchisees to have:

• Net Worth: $1,000,000.
• Liquid Assets: $400,000.

While the restaurant franchise cost can be substantial, many entrepreneurs find the investment worthwhile due to the benefits of an established brand and proven business model. Before committing to a franchise, thoroughly research your options, carefully review all financial requirements, and consult with legal and financial professionals to ensure you’re making an informed decision.

Remember, the success of your franchise restaurant will depend not only on the initial investment but also on your dedication, management skills, and ability to execute the franchisor’s system effectively. By understanding the costs and process involved, you’ll be better prepared to embark on your journey as a restaurant franchise owner.

Ready to join a successful brand? Start your journey and learn more about the Perkins franchise opportunity.