How Much Does It Cost to Open a McDonald’s Franchise?

Are you a budding entrepreneur looking for a proven business opportunity? With over 40,000 locations in over 100 countries, a McDonald’s franchise could be your recipe for success. But before you start flipping burgers and serving up fries, it’s crucial to understand the true cost of opening a McDonald’s restaurant.

While the golden arches are certainly a golden opportunity, they don’t come cheap. The initial investment for a McDonald’s franchise starts at $700,000 minimum, with an average restaurant generating annual sales of $2.7 million. 

So, what exactly goes into that seven-figure startup cost? And what ongoing expenses can you expect as a franchisee? We’ll break down all the costs and fees involved in opening and operating a McDonald’s so you can make an informed decision about whether this franchise is the right fit for your financial goals and business aspirations.

The Upfront McDonald’s Franchise Cost and Fees

So, what does it take to get a McDonald’s franchise up and running? Let’s start with the biggest piece of the pie: the initial franchise fee.

To join the McDonald’s family, you’ll need to pay a one-time franchise fee of $45,000 for a 20-year term. This fee grants you the right to operate a McDonald’s restaurant and use the company’s trademarks, proprietary systems, and business processes.

But the franchise fee is just the first bite. Here’s a breakdown of the other startup costs you can expect:

• Ordering kiosks and point-of-sale systems
• Kitchen equipment like grills, fryers, and refrigerators
• Dining room furniture and decor
• Drive-thru equipment and menu boards
• Interior and exterior signage

Budget around $500,000 to $1 million for all necessary equipment and signage, and then, there are other expenses to consider: 

Real estate and construction expenses:

• Purchase or lease of land and building
• Site improvements like landscaping and parking lots
• Construction and remodeling costs

Depending on the location and size of your restaurant, you can expect to spend anywhere from $500,000 to $1.5 million.

Inventory and supply expenses: 

• Initial food and paper product inventory
• Uniforms for crew members
• Cleaning supplies and equipment

Set aside $20,000 to $40,000 to stock your shelves and get your team suited up.

Other miscellaneous expenses:

• Permits and licenses
• Insurance premiums
• Professional fees (legal, accounting)
• Opening promotion and advertising
• Training expenses

These miscellaneous costs can add up to $60,000 or more.

So, How Much Does it Cost to Open a McDonald’s Franchise? The Grand Total

The total upfront investment to open a McDonald’s franchise typically ranges from $1,000,000 to $2.5 million. That’s a supersized amount, but remember, you’re investing in a brand with global recognition and a proven track record of profitability.

Of course, the specific costs will vary based on factors like location, restaurant size, and local market conditions. But one thing is for sure — opening a McDonald’s franchise requires a significant upfront financial commitment.

Beyond the Startup Fees: Ongoing McDonald’s Franchise Costs

As a McDonald’s franchisee, you’ll pay a monthly royalty fee of 4% of your gross sales. So, if your restaurant generates $500,000 in sales per month, you’ll owe McDonald’s $20,000 in royalties. This fee covers the ongoing support, training, and operational guidance provided by the McDonald’s corporate team.

In addition to royalties, you’ll contribute to McDonald’s national and local advertising funds. The advertising fee is currently set at 4% of gross sales. Using the same example above, if your monthly sales are $500,000, you’ll pay $20,000 in advertising fees.

If you lease your restaurant property from McDonald’s, which is common, you’ll also pay a base rent plus a percentage of your gross sales. The exact rent amount varies based on location and market conditions but typically ranges from 8.5% to 15% of gross sales. Then, on top of rent, you’ll be responsible for property taxes, insurance, and maintenance costs related to your restaurant building and grounds.

Putting It All Together

To sum it up, as a McDonald’s franchisee, you can expect to pay the following in ongoing fees and expenses:

• Royalty fee: 4% of gross sales
• Advertising fee: 4% of gross sales
• Rent: 8.5-15% of gross sales (if leasing from McDonald’s)
• Operating expenses: 5-7% of gross sales
• Labor costs: 25-35% of gross sales

While these percentages may seem small, they can add up quickly based on your restaurant’s sales volume. For example, if your annual sales are $3 million, you’ll pay $120,000 in royalties, $120,000 in advertising fees, and $255,000 to $450,000 in rent alone.

Do You Have What It Takes? Financial Requirements and Approval Process

To be considered for a McDonald’s franchise, you must have a minimum net worth of $700,000. This means the value of your assets (such as cash, investments, and property) must exceed your liabilities by at least half a million dollars.

But that’s not all. You’ll also need at least $250,000 in liquid assets, which are cash or assets that can be easily converted to cash without significant loss of value. This ensures you have the necessary funds to cover your franchise’s upfront costs and initial operating expenses.

As part of the application process, McDonald’s will also conduct a thorough background check and review your financial history. This includes:

• Credit report and score
• Tax returns
• Bank statements
• Investment portfolio
• Business experience and references

You’ll need to provide a detailed financial disclosure to demonstrate your ability to fund and operate a franchise.

How Does McDonald’s Stack Up? Franchise Comparisons

Before you commit to a McDonald’s franchise, it’s wise to explore other options in the fast-food industry. Here’s how McDonald’s compares to some popular alternatives:

Burger King

• Franchise fee: $50,000
• Total initial investment: $332,000 to $2.7 million
• Royalty fee: 4.5% of gross sales
• Advertising fee: 4% of gross sales
• Average annual sales: $1.4 million

Wendy’s

• Franchise fee: $50,000
• Total initial investment: $2 million to $3.5 million
• Royalty fee: 4% of gross sales
• Advertising fee: 4% of gross sales
• Average annual sales: $1.6 million

Subway

• Franchise fee: $15,000
• Total initial investment: $116,000 to $263,000
• Royalty fee: 8% of gross sales
• Advertising fee: 4.5% of gross sales
• Average annual sales: $420,000

As you can see, McDonald’s has a higher initial investment and total costs compared to some other fast-food franchises. However, it also boasts higher average annual sales and brand recognition, which can contribute to greater profit potential for franchisees.

Serving Up Success: Is a McDonald’s Franchise Right for You?

Opening a McDonald’s franchise is a serious undertaking, requiring significant upfront capital, ongoing financial obligations, and a commitment to upholding the brand’s standards and values. 

As we’ve outlined, the total initial investment can range from $1,000,000 to over $2,000,000, with ongoing fees and expenses claiming a substantial portion of your gross sales.

However, for those with the financial means and business acumen, a McDonald’s franchise offers the opportunity to be part of a globally recognized brand with a proven track record of success. With average annual sales of $2.7 million per restaurant and the potential for six-figure franchisee incomes, a McDonald’s franchise can be a lucrative venture for the right investor.

If you have the financial resources, business experience, and passion for delivering high-quality food and service, a McDonald’s franchise could be the key to unlocking your entrepreneurial dreams. With hard work, dedication, and a commitment to following the McDonald’s system, you can build a thriving business that serves up success for years to come.