There's no question about it, McDonald's is the most successful restaurant in the history
of the world.
The company isn't worth millions, but billions, nearly $150 billion, and that number keeps
climbing every day.
Back in the 1950s, the man who would eventually turn McDonalds into an international powerhouse,
Ray Kroc, had a lot of big ideas for the restaurant.
But perhaps his biggest idea can be summed up in a single word.
"Franchise, franchise, franchise, franchise, franchise."
The food at McDonald's has always sold like hotcakes but once the restaurant started franchising,
the world began eating up the brand.
So, it's not surprising that for decades, entrepreneurs have been flocking to the Golden
Arches with dreams of opening their own McDonald's.
But being a franchise owner isn't as easy, or profitable, as you might think.
For starters, buying into a McDonald's franchise is expensive, and if prospective franchisees
want to get a piece of the pie, they'll have to bring some heavy coin to the table.
According to Business Insider, the initial investment is between $1 million and $2.2 million.
That price tag is pretty broad, but McDonald's notes that these costs are based on the restaurant's
location and size.
Long story short, it's going to cost a lot more to buy a McDonald's franchise in San
Francisco than it is in Saginaw, Michigan.
Before you take the plunge with Mickey D's and start your own franchise, keep in mind
that 40 percent of that initial investment must be cash or non-borrowed assets.
Whether it's McDonald's or other fast food restaurants, franchise owners can do pretty
well, at least, once they get past their initial investment hurdle.
According to Business Insider, the average McDonald's restaurant takes in around $2.7
million a year in sales.
That may not be quite as high as other well-known eateries, such as Chick-fil-A or Panera Bread,
but it's still pretty good.
Of course, some McDonald's franchise owners are going to make more than others, but most
franchisees pull in an estimated yearly profit of roughly $150,000.
However, after $2.7 million in sales, a profit of $150,000 isn't even 6 percent.
Once you deduct the price of supplies, food, payroll, and about a dozen other costs handed
down by the corporation, that's what an average franchise owner is left with.
The franchise system has been a major reason for Ronald and his company to celebrate since
the 1950s, and it's actually how McDonald's makes a significant portion of its profit.
Plus, franchise owners have historically brought a lot more than money to the table by contributing
some of the company's most important innovations.
"The Big Mac, the Filet-O-Fish, even the drive-through concept were all developed by franchisees
working within the McDonald's framework."
So while McDonald's franchise owners can make a six-figure salary through their restaurant,
the McDonald's corporation is making much, much more.
It all starts with the $45,000 franchise fee that owners pay.
Then, there's the never-ending monthly service fee that takes 4 percent of a location's gross
sales.
After that, franchisees pay a rental fee each month, which works out to be an average of
around 10.7 percent of sales.
So basically, McDonald's franchise owners are forking over 15 percent of their sales
every month to the Mickey D's machine.
This system is extremely profitable for the Golden Arches.
So much so that only around 5 percent of the McDonald's locations on the planet are owned
by the company.
The rest are franchise operations that are paid for upfront by the franchise owner.
According to Reader's Digest, McDonald's raked in 27.4 billion dollars in revenue in 2014,
and how that breaks down is pretty telling.
$9.2 billion of the revenue was from franchised locations and $18.2 billion was attributed
to company-owned locations.
On the surface, it sounds like the company-owned locations are the real money-makers, but that's
simply not the case.
The cost of running a business, especially a restaurant, can really cut into its profits.
At the end of the day, McDonald's only keeps around 16 percent of the revenue its company-owned
stores make, but it keeps 82 percent of the revenue franchisees pay out to it.
That all adds up to mega-bucks for Mickey D's.
So, while owning a franchise should put plenty of food on your table, the McDonald's corporation
will take a huge bite out of your bottom line.
"It's like they don't care if you make money as long as they make money.
What kind of corporation does that?"
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