McDonald's Franchise Owners Make A Surprising Amount Of Money

McDonald's claims the crown as the most successful restaurant company of all time. It's website boasts that the fast food locations are found on all inhabited continents of the world. More McDonald's restaurants exist in North America than anywhere on the planet.

According to Reader's Digest, a mere 5% of McDonald's restaurants are owned by the company. Founder Ray Kroc built his international fast food empire using the tool of franchises, allowing the brand to thrive and expand at phenomenal speed. McDonald's Corporation's best interest is to see as many franchisees as possible. This is where it makes the majority of its money, in fact. McDonald's Corporation only realizes approximately 16% of company stores' income while it nets 82% of the franchisee revenues that owners pay each year.

Getting a McDonald's franchise started requires a huge financial commitment, significant net worth, and many upfront costs. The resulting annual payoffs for single locations are not as high as people might expect. Surprisingly other competitors like Chick-Fil-A franchises make almost twice as much as the McDonald's franchises do. If you had invested $1,000 in McDonald's 10 years ago, you would have likely enjoyed a much better return percentage than a franchisee.

Business Insider reports that the upfront investment required to open a McDonald's ranges from $1 million to $2.2 million. McDonald's explains the significant costs stem from several factors. A restaurant size and location makes up a big part of the expenses, and landscaping choices affect the price range too. A locale such as California is more expensive for McDonald's franchise startups than Michigan.

McDonald's does not make it easy on prospective franchisees. A full 40% of the upfront investment has to be made in either cash or from assets that are not borrowed. A new McDonald's franchisee can expect to cover from $400,000 to $880,000 of costs with liquid assets to get the operation up and running.

The financial requirements to run one McDonald's do not stop with this upfront cost either. Franchisees pay a hefty $45,000 franchise fee to start. Once the location is open, it must share 4% of the location's gross sales with the McDonald's Corporation. The franchise owner is also on the hook for a rental fee that averages approximately 10.7% of monthly sales. Altogether these and other franchise costs amount to more than 15% of monthly sales. Franchisees are also required to buy all products from the corporation.

The average McDonald's location grosses approximately $2.7 million per year in sales, per Business Insider. This sounds like a lot of revenue until compared to competitors like Chick-fil-A or Panera. From this amount franchise owners have to pay mandated corporate costs including supplies, ingredients and food, crew payroll, and another dozen associated franchise charges, per Mashed.

The profit on a McDonald's restaurant is not as high as some might expect. The majority of their franchisees realizes an annual profit of $150,000 per location. On the $2.7 million in sales this net is actually less than 6%. Still, it is better than Steak 'N Shake's troubles and results.

Compare this return to competitor Chick-fil-A franchise operations, and the McDonald's outcome becomes far less impressive. Per DrFranchises, the average Chick-fil-A single location owner grosses over $5.3 million in annual sales. The net profit per year averages around $265,000 per location. On top of this, Chick-fil-A only charges $10,000 in its upfront franchise fee. Even Subway, the world's largest sandwich brand, only levies about $15,000 in such fees.