A lot of prospective franchisees are drawn to the model’s unique benefits – and for good reason. Operating a franchise as opposed to starting your own restaurant from scratch can substantially reduce the hurdles involved in getting your business up and running. However, the various benefits and opportunities granted by running a franchise aren’t usually on the house.
Both independent restaurants and franchises come with their own set of advantages and challenges, particularly concerning cost-effectiveness. So, is one option cheaper than the other? Keep reading to find out.
New to the world of franchises? We recently assembled an Ultimate Guide to Buying a Franchise Restaurant. Click here to download it.
The Short Answer
When it comes to startup and operational costs, there’s no catch-all comparison that can be made between starting your own restaurant from the ground up and going the franchise route. Every circumstance is different and there are simply too many variables to account for to argue that one avenue is cheaper than the other.
The reality is that both independent eateries and franchises come with a heap of costs – no matter which way you slice it. So, deciding on which option is best for you should take your broader personal and business goals into account.
Need more industry-insider tips about opening a franchise in Canada? Check out these blog posts.
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- How to Interview a Franchisor
- Is it Easier to Run a Restaurant in the Suburbs?
What Are the Costs Involved in Buying & Operating a Franchise?
Like any type of business, there’s a long list of expenses associated with buying a franchise and making it successful long-term. However, by understanding the costs involved and conducting thorough due diligence, you can mitigate risks and position yourself for success in the famously cutthroat restaurant industry.
Franchise Fees
This is the upfront payment made to the franchisor for the right to use their brand, trademarks, and business model. In Canada, franchise fees can range from thousands to hundreds of thousands of dollars depending on the popularity and reputation of the brand. The greater the brand recognition and resources, the higher the fee (usually).
Costs of Real Estate
Whether you’re running your own business or a franchise, you’ll need a space to do it. Commercial real estate costs can also vary wildly, and you’ll need to decide whether you’ll buy or rent your restaurant space. The franchisor may also ask (or require) you to upgrade or renovate the property to meet their brand standards which can further add to the upfront costs of your investment.
Assets & Equipment
From kitchen appliances and POS systems to dining furniture and cutlery, outfitting a restaurant with the necessary equipment and assets isn’t cheap. That said, some franchisors have strong business relationships with suppliers and can help you access everything you need at a discounted rate.
Labour
Employee wages and benefits are major ongoing expenses for any restaurant. As a franchisee, your labour costs will vary depending on factors such as location, minimum wage laws, staffing needs, and your business plan.
Royalties
When you run a franchise, you’ll pay ongoing royalty fees to the franchisor, which are usually calculated as a percentage of sales. In Canada, royalty rates typically range from 5% to 8%. Some franchisors also collect a separate marketing fee on top of standard royalties. These are also collected as a percentage of revenue – usually around 2% to 5%.
Searching for other franchise-related resources? We’ve got lots! Explore these other posts from our site.
- Buying a Restaurant Franchise? Here’s What You Should Know
- 5 More Things You Should Know About Opening a Franchise
- Tips For Signing a Franchise Agreement
Time is Money
If you’re thinking about cost-benefit in regards to your business expenses, it’s also important to consider how the franchise model can put money back in your pocket. Yes, owning a franchise does mean taking on certain expenses that you wouldn’t as an independent restaurant owner. However, the benefits provided by the franchisor are ultimately meant to bolster your bottom line – not detract from it.
Launching (and managing) a restaurant is remarkably time-consuming – and, as a business owner, your time is extremely valuable. When you buy a franchise, many key details like branding, marketing, operation protocols, and HR processes, are already sorted out. As a result, you get a ton of time back in your pocket.
Considering the purchase of a franchise? As seasoned experts in Canadian restaurant real estate, we’re here to help. Send us an email or give us a ring at 416-618-0054 to get started.
