If you have an entrepreneurial spirit but are hesitant to start a business from scratch, franchising may be the perfect solution. With a franchise, you join a proven and successful business model that offers name recognition, training, and support from the start.
One such franchise you may be interested in is the Subway franchise. Healthy, fast, delicious, affordable—there are plenty of reasons why customers love this chain. If you’re thinking about opening a Subway franchise, know that you’re in good company. There are almost 45,000 locations worldwide. The first Subway restaurant began in 1965 and the love for these tasty sandwiches is still going strong.
Currently, Subway is one of the largest chain restaurants in the world, partly because of the success of their franchise program. For the most part, the business owners who have chosen to purchase a franchise seem pretty happy with their decision: 70% of all new Subway franchise locations are opened by existing franchise owners. Before starting a Subway franchise, you’ll want to consider some of the following important factors.
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How to Purchase a Subway Franchise
According to Subway, the overarching steps for applying for a franchise are as follows.
- Apply to receive more detailed information about buying a franchise, such as a franchise agreement and Franchise Disclosure Document.
- Meet with your Business Development Agent and begin the research process.
- Receive approval by passing their standardized test and get application approval.
- Select the ideal site for your restaurant.
- Purchase your franchise officially.
- Take your two-week training course.
- Open your Subway restaurant.
4 Things to Know About Buying a Subway Franchise
If you have some serious questions, like how much is a Subway franchise? Or, what type of benefits will be available to me? Then you’re off to a great start. Opening a franchise business is a big undertaking and one that you should research and consider carefully. Which is why we’ve outlined four good things for you to know when you buy a Subway franchise.
1. The Costs
If you’re serious about opening up a Subway franchise, you better be serious about how much you’re willing to spend. Although prices vary depending on location type, overall the Subway franchise costs can amount to hundreds of thousands of dollars. Subway estimates you’ll spend about $116,000 to $263,000 in the United States and $102,000 to $234,000 if you’re located in Canada.
Surprisingly, Subway is considered one of the cheaper fast food franchises to open. For comparison’s sake, opening a McDonald’s franchise can cost as much as $2.2 million in startup costs. Just to start, McDonald’s charges a $45,000 franchise fee, whereas Subway only charges $15,000 for a Subway franchise fee. A basic breakdown of the costs, according to Subway, that cover three months of operation is as follows:
- Franchise fee: $10,000 to $15,000
- Leasehold improvements: $12,000 to $143,000
- Opening inventory: $2,500 to $10,000
- Opening advertisement: $1,000 to $6,000
- Security system setup: $1,000 to $7,500
- Outside signs: $1,200 to $21,000
- Equipment: $3,000 to $65,000
- Legal and accounting: $400 to $8,000
- Training expenses: $2,000 to $7,000
- Miscellaneous expenses: $1,600 to $20,000
- Real property costs: $2,000 to $24,000
- Insurance: $400 to $4,000
The upfront costs of opening a Subway franchise can add up but don’t think the costs stop there. You will have to pay ongoing fees to Subway as a part of their franchise program. You should consider these fees before you determine if buying a Subway franchise will be profitable for you. Ongoing fees include a weekly fee that amounts to 12.5% of your gross sales (minus sales tax). According to Subway, 8% of what you pay in fees goes toward covering franchise royalties and the other 4.5% is allocated to advertising.
2. Funding Options
While these Subway franchise fees may sound a bit scary, it’s worth noting that on average, individual Subway restaurants generate $417,000 in sales annually. If you need help securing the cash required to buy a Subway franchise, consider pursuing franchise financing options. The following options may help make your franchise dreams a reality.
- Startup business loans: If you have no experience as a business owner, then a startup business loan could be an ideal solution. An SBA microloan or small business grant can help brand-new businesses receive funding. Typically, you should prioritize SBA microloans as they can have lower interest rates and long repayment terms. Be warned, though, obtaining this type of loan is competitive.
- Business line of credit: A business line of credit is helpful if you don’t want to pay interest on money you don’t need to borrow. Unlike a loan, which gives you a lump sum to utilize, you can pull money from a business line of credit only when you need it. You’ll still have a set loan amount, but whatever money you don’t borrow won’t cost you in interest.
- Business credit cards: A business credit card requires less credit history to apply for than a loan, so newer business owners may have better luck with this funding source. Aim to apply for credit cards with a 0% introductory APR, that way as long as you pay off your balance by the time the introductory period ends (and a variable APR sets in), you won’t pay any interest.
- Equipment financing: As any type of restaurant franchise will require equipment, you may want to pursue equipment financing. This type of financing will use the equipment you purchase as collateral, which can make it easier to qualify for.
You may also be able to turn to Subway for help with financing. Subway will offer to finance $10,000 of your franchise fee if you are purchasing your first franchise and if you qualify under their minority loan program. Another loan program exists for franchises located in a low-density market. You may also be able to qualify for reduced fees if you open a satellite restaurant. Your franchise fee will be reduced to $5,000 if your satellite restaurant will be in operation for over a year or $1,000 if in operation for less than a year.
3. The Training
One of the main advantages of franchising is that you’re not alone—you have the experts at your disposal. When you open a Subway franchise, you will be provided with the necessary training to help your franchise succeed. Remember, the better your franchise performs, the more money Subway makes. That means they have plenty of motivation to help you succeed.
The support and training you receive will begin before you open your store and continue afterward. They offer systems that will continuously help your franchise operate efficiently and effectively. To start, when you first buy a Subway franchise, both you and whomever your designee or manager is, will be given the opportunity to participate in a two-week training program.
During these two weeks, you’ll learn about basic business concepts, how to be an effective manager, and methods of operation straight from the franchising experts. You’ll head to class on-site at a local Subway franchise location where you’ll be given hands-on educational experience. At the end of your training, you’ll need to pass an exam that proves you’re ready to own and run your own Subway franchise.
4. The Support
One of the main appeals of opening a franchise, is that a lot of the necessary infrastructure required to run a successful business is already in place. Product development, brand awareness, and operational systems have been mastered before you even thought of opening a franchise. The Subway franchise system offers a variety of these benefits that can make running your business more efficient and more profitable. Subway offers the following helpful benefits to franchise owners.
- Training programs
- Required formulas and operational systems
- Assistance with store design and how to order equipment
- Help with site selection
- Operations manuals
- A Subway representative will be on-site during your opening
- Support and periodic evaluations
- Menu research and development
- Informative and guiding publications
- Continuous education resources
You’ll be able to access training and support through a variety of avenues. There is a toll-free support line, ongoing meetings, newsletters, field support, and digital support offered to franchisees.
Another area you’ll receive ongoing support in is advertising. While your franchise may not directly be involved in marketing efforts, Subway spends ample time, resources, and money planning cooperative advertising. Your franchise will benefit from their access to both national and regional media, as well as any good PR the company receives as a whole. It’s worth noting though, that anytime Subway as a whole is negatively affected by bad press or poor public opinion, your franchise could suffer as a result.
Pros and Cons of Buying a Subway Franchise
While your list of pros and cons may vary based on your financial and business needs, we’ve outlined a few typical benefits and concerns of buying a Subway franchise.
- You can leverage an established brand
- You inherit customer trust
- Intensive operational systems are already in place
- Your advertising efforts will be handled by experts
- There are support systems in place designed to help you succeed
- You won’t need to oversee new product development
- You’ll pay extensive upfront costs
- There are ongoing fees you will be required to pay weekly
- You’ll have less flexibility then you would if you started your own freestanding business
- If the Subway brand receives negative press, your franchise location could suffer
With a little elbow grease and a major love of sandwiches, your Subway franchise will surely be a hit. You know you already have the literal recipes for success, so as long as you take advantage of the support offered to you and avoid any of the hidden costs associated with being a franchise owner, you should be good to go.