SubwayOwner.com

The costs of operating a Subway Franchise vary from store to store however there are very strict fixed costs that for the most part are almost the same clear across the board. In this sections were going to look at these costs and try to give you an idea of where you can expect your money to be going.

When you walk into a Subway Restaurant and look around your really just looking at the outside shell of an operation that clearly has costs and monthly expenses associated with it. Perhaps you get in line and purchase a sandwich, the Sandwich artist makes your order according to your specifications and then totals out your order and you part with $7.00 in exchange for the service you just received.

Most consumers are savvy enough to understand that the $7.00 sandwich which they just purchased probably cost around $2.00. In their minds you just made a $5.00 profit so clearly you are doing well for yourself. However no one thinks of all the associated costs that go along with the production of that very sandwich. These costs are eating into every dollar that you bring in and its very important to control these as best as you can. So what are these costs ?

        Royalties – Subway just like any other Franchise charges you a fee for the privilege of using their trademark name. Since they also provide you advertising material and operational material their expectation is to take a cut of your sales for this very service. Currently this figure is 12.5% and is split into two parts. 8% of all your sales go directly to Subway, this is the price that you pay for being a Subway Restaurant. You can save the 8% and call yourself “Bobs Sandwiches” but your loss of sales and non name recognition would by far cost you more then the 8% your giving up to have Subway plastered on your door. The other part of your overall 12.5 % is 4.5% that you pay to a local advertising fund. This 4.5% stays in your market locally and pays for any associated advertising costs. Yes those TV ads cost a ton of money and it comes out of your pocket.

        Sales Tax – This figure is different depending on the county and state your Subway Franchise is located in but as a rough estimate lets make this 8%. So for every dollar you bring into the store 8% goes to the state, you never see it however since you only pay sales tax four times a year you can make some interest on this before you hand it over to Uncle Sam.

        Labor – This is not a fixed costs and your ability to control this number will make or break your business. Clearly you can understand that on a snowy or rain day when business is slow you dont need a full staffed store. You need to adjust your labor costs depending on your sales volume. A good figure here is to keep you labor around 22% and just under 30% if you have a full time manager.

        Food Cost – Nothing is free and clearly you have to pay for the product that you sell. On the outside you may think that this is a fixed costs but Food costs is not fixed. You can very much control this by keeping track of your inventory and making sure none of it walks out the door. As of this writing a good Food Cost figure is around 28%.

        Utilities – You run the lights, the oven and all the other associated equipment that requires electricity to operate your Subway Restaurant. Utilities vary from state to state and it really pays to shop around. Expect to pay more during the summer months (that five ton AC on the roof drains a lot of juice) and less in the winter time. Depending on your sales volume this figure will run in the 4%– 8% range.

        Rent – Your rent costs are negotiated by Subway and for the most part they do a pretty good job at making sure that these costs are relevant to the location of your Subway Restaurant. You should be around 6% - 8% on this. I would go slightly higher for a really prime location. Remember however that this figure is relative to your sales so a high sales store will pay more in rent of course, however because your sales are also higher the overall percentage is about the same. Poor locations pay around $1600 all the way up to $3000 or more for prime spots.

        Loan – Unless you had the money or someone just gave it to you (lucky you) then chances are there is a monthly loan payment that you make to the very Financial Institution that financed your store. This is by far the biggest expense that you hope to rid yourself of as quickly as possibly. Lets use a figure of around 11% on this but keep in mind that loan rates will greatly influence this figure.

        Everything else – This category includes Insurance , equipment maintenance and repairs that you pay out of pocket for. Things like leaky sinks, drainage problems and so on will obviously cost you. If your a do it yourself then thats even better. I allocate around 4% to this figure.

Putting it all together.

So lets add up all our figures and see where we stand

        ROYALTIES 12.5%

        SALES TAX 8%

        LABOR 30% ( on the high side)

        FOOD COST 28%

        UTILITIES 8% (on the high side)

        RENT 8%

        LOAN 11%

        EVERYTHING ELSE 4%

        TOTAL 109.5%

Now clearly were in the red here and we cant expect to make any money running our store like this. Keep in mind however that I intentionally made my numbers look high to give us that buffer room that we surely will get by fine tunning our expenditures.

The first figure that we can surely cut into is labor, I expect that you will be working your own store and this in turn will lower your overall labor percentage. I used 30% as a guide mostly because new owners will always be on the high side when it comes to labor. There is a fine learning curve when it comes to scheduling and once you become an expert in this area you can easily bring this number down to 23% or less. All my stores run at 21%. So if we knock that down by 8% we get a final expenditure percentage of 101.5% still a bit high.

From my experience I can tell you that your Utility costs can very much be controlled by you. I shop around for the best rates that I can get, I run energy efficient bulbs and my AC is set to 75 degrees. Just taking simple steps like these can easily lower your Utility costs down to 6%. This brings down our overall costs to 99.5%. Now thats something that we can work with.

Keep in mind that your living or the money that you take home is clearly a representation of how many hours you work. My first store I worked close to 50 hours a week and managed to bring home about $35.000 a year. Not a huge incomes but enough to be comfortable. As the years went by my loan payment adjusted and once the loan was out of the way I removed that 11% monthly expenditure. That was money in my pocket to the tune of over $1000 a week, plus the hours that I worked. On average I was taking home close to $1600 a week . Not a bad income but it takes a few years to get to that point.

By this time in the game your probably not really sure if its even worth the effort. Well you wont get anything unless you work for it so don't take these figures at face value. You can adjust your costs by quite a bit and every percentage point you save at the top means more money in your pocket.

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