This article was updated with the 2023 Franchise Disclosure Document
Undeniably the most famous and largest franchise globally, McDonald’s needs no introduction. With about 37,000 franchised restaurants globally of which 1/3 in the US alone, McDonald’s is a very popular brand for franchisees.
But is McDonald’s really the franchise for you? First, you would have to invest on average $1,345,000 to open a new restaurant in the US.
What about profits? With an Average Unit Volume of $3.5 million McDonald’s indeed seems like a profitable business.
In this article we’re looking at McDonald’s and its latest (2023) Franchise Disclosure Document to find out all you should know about it. Let’s dive in!
Key stats
| Franchise fee | $45,000 |
| Royalty fee | 4.00% |
| Marketing fee | 4.00% |
| Investment (mid-point) | $1,345,000 |
| Average sales | $3,505,000 |
| Sales to investment ratio | 691.0x |
| Minimum net worth | $500,000 |
| Minimum liquid capital | $500,000 |
McDonald’s Franchise Financial Model
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About McDonald’s Franchise
McDonald’s is a leading multinational fast-food chain headquartered in Chicago, Illinois. It serves hamburgers, chicken products, chicken sandwiches, breakfast items, French fries, soft drinks and much more.
McDonald’s was first founded in 1940 by the MacDonald brothers, Richard and Maurice, in San Bernardino, California, as a drive-in hamburger stand that offered a limited menu, concentrating on just a few items (burgers, fries and beverages), which allowed them to focus on quality and quick service.
In 1954, Ray Croc joined the company as a franchising agent and later bought the exclusive rights to the McDonald’s name and the operating system and formed the McDonald’s Corporation.
Franchising since 1955 McDonald’s is the largest fast food chain franchise, with a presence in over 100 countries and serving more than 69 million guests daily. As of 2022, the chain had opened 36,696 locations globally with 12,772 franchises in the US.
McDonald’s has consistently ranked in the Top 10 Franchises in the world in Entrepreneur Magazine and Franchise Times Magazine and is a promising opportunity for franchisees with opportunities worldwide.
McDonald’s franchise: pros & cons
The Pros:
- Extensive training: The franchisor conducts a detailed franchise training program consisting of 100+ hours of on-the-job training at its Hamburger University and 81 hours of online training. Franchisees get training on conducting a McDonald’s franchise, maximizing performance, growing their businesses, etc.
- Popular brand recognition: McDonald’s is a reputable brand that commands a huge customer base and global recognition. Franchisees can leverage a popular brand, a proven business concept and a well-established franchise infrastructure to attract customers to their locations and establish loyalty.
- Multiple franchise formats: The franchisor offers its franchisees a variety of franchise types to choose from, making the most of available real estate and working within their budgets. These are traditional restaurant franchises, satellite locations, “Business Facility Lease” franchises and “Small Town Oil” franchises.
- Marketing and advertising: McDonald’s has strong marketing and branding systems to help franchisees promote their restaurants and increase profitability. These include national media, Co-Op advertising, social media, email marketing, local store marketing and loyalty program apps.
- Site selection and development: The franchisor carries out the discovery process, real estate and construction by identifying and developing the sites and franchising them to successful franchisees.
The Cons:
- No exclusive territory protection: McDonald’s does not grant its franchisees the right to operate in an exclusive territory. Franchisees may face competition from other franchises licensed by the franchisor or brands affiliated with the parent company.
- Not a home-based business: The franchise cannot be operated from home or a vehicle. The franchisor requires its franchisees to have an established office space to work from.
- Not a passive investment: The franchisor does not allow for absentee ownership. Franchisees are supposed to be actively involved in the day-to-day operations and management of their restaurants.
McDonald’s franchise costs
The investment you should make to become a McDonald’s franchise is $1,345,000 on average.
The number is just an average that will vary based on your situation; for example there are 3 different types of McDonald’s franchised restaurants:
- Standard (freestanding or end-cap unit): $1,986,000 average initial investment
- Small Town Oil (“STO”) restaurants for units located in fuel station/convenience store facilities: $1,360,500 average initial investment
- Small Town Retail (“STR”) restaurants for units that anchor a small retail center in rural communities: $687,500 average initial investment
| Low | High | Average | |
|---|---|---|---|
| Standard | 1,469,000 | 2,503,000 | 1,986,000 |
| STO and STR locations | 1,012,500 | 1,708,500 | 1,360,500 |
| Satellite locations | 521,000 | 854,000 | 687,500 |
| Total | $521,000 | $2,503,000 | $1,344,667 |
Startup costs
The initial investment typically includes costs like the first 3 months’ rent, signs, seating, equipment, decor, opening inventory, and additional funds for 3 months to operate the business, etc.
Here’s a summary of the various costs you should pay:
| Type of Expenditure | Low | High |
|---|---|---|
| Initial Franchise Fee | $0 | $45,000 |
| Real estate & rent | $0 | $313,000 |
| Equipment, furniture, decor | $375,000 | $1,650,000 |
| Opening inventory | $12,000 | $39,000 |
| Working capital | $80,000 | $355,000 |
| Others | $54,000 | $101,000 |
| Total | $521,000 | $2,503,000 |
McDonald’s franchise fees
The initial franchise fee for a McDonald’s franchise is $45,000
In addition to the initial franchise fee, you must pay to the franchisor a royalty fee of 4.00% of revenues, as well as a variable marketing fee of 4.00% of revenues.
McDonald’s franchise revenue
On average, a McDonald’s franchise makes $3,505,000 in sales per year (+5% s. 2021).
This amount is the median sales of 11,746 franchised restaurants operating in 2022.
McDonald’s franchise profits
We estimate that a McDonalds franchised restaurants makes $186,000 in profits per year. This represents a 5.3% EBITDA margin.
In order to assess carefully the profitability of a McDonald’s franchise, one must read between the lines in the latest Franchise Disclosure Document. Indeed, whilst McDonald’s provides some valuable information on its franchised restaurants’ cost structure (for example COGS), it doesn’t include all relevant costs.
For example, for restaurants between $2.7M and $3.1M AUV, COGS represents 28.6% to 28.8% of Sales. The franchisor also include what they refer to as “Operating Income Before Occupancy Costs” effectively EBITDAR before royalty and service fee expenses. Here’s the extract from the FDD:
Therefore, we had to adjust to estimate EBITDA, by including royalties and rent (which is anywhere from 10 to 15% of sales as per the Item 6 of the FDD). See the profit and loss which we estimated and summarized below:
| Profit and loss | Amount | % Sales |
|---|---|---|
| Sales | $3,505,000 | 100% |
| COGS | $(1,005,935) | 28.7% |
| Gross Profit | $2,499,065 | 71.0% |
| Labor | $(1,594,775) | 45.5% |
| Marketing and royalty costs | $(280,400) | 8.0% |
| Occupancy | $(438,125) | 12.5% |
| EBITDA | $185,765 | 5.3% |
McDonald’s Franchise Financial Model
Get a professional financial plan for your franchise application. In 2023 we have helped over 120 franchisees get funding for their franchise.
Learn more about our services
Trustpilot
McDonald’s Franchise Financial Model
Get a professional financial plan for your franchise application. In 2023 we have helped over 120 franchisees get funding for their franchise.
Learn more about our services
Disclaimer
Disclaimer: This content has been madefor informational and educational purposes only. We do not make any representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the information presented in the article. You should not construe any such information or other material as legal, tax, investment, financial, or other professional advice. Nothing contained inthis articleconstitutes a solicitation, recommendation, endorsem*nt, advertisem*nt, or offer to buy or sell any franchises, securities, or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the franchise and/or securities laws of such jurisdiction.
All content in this article is information of a general nature and does not address the detailed circ*mstances of any particular individual or entity. Nothing in the article constitutes professional and/or financial and/or legal advice, nor does any information in the articleconstitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other content in this article before making any decisions based on such information or other content.
