Do you want to start a Subway franchise and want to know the fees, agreement, details? If YES, here’s how much it will cost to buy a Subway franchise for sale.

It is a statistically proven fact that fast food restaurants are billion dollar businesses in the United States. In 2015, the industry’s revenue was estimated to be around $200 billion and the industry is expected to have an annual growth of 2.5% for the next several years.

The United States alone has over 200,000 fast food restaurants and it is estimated that 50 million Americans eat at one of them every single day. The industry employs over 4 million, and restaurant franchises added over 200,000 jobs to the number.

Consumers of fast food focus on taste, price and quality and that is why fast foods aim at consistently improving the quality of their product offerings in order to carve a niche for themselves in the competitive industry. This was why Subway decided to align itself with providing fresh and healthy meals.

Subway is a very profitable restaurant that has over 44,000 units all over the world and it has been offering franchise since 1974. The overall success of the restaurant chain has made acquiring its franchise a very profitable business venture.

If you are seeking to buy a franchise in the fast food restaurant industry, then you may need to do a check on this unique restaurant.

Cost of Buying a Subway Franchise for Sale – A Complete Guide

Details to Note About Acquiring a Subway Franchise

An intending Subway franchisee should take note of the following details;

  • Financial Assistance

Subway offers its franchisees in the United States an effective equipment leasing program. The company pays $10,000 out of the initial franchise fee under its minority loan program for qualified franchisees purchasing their first franchise at the full franchise fee.

In certain uncommon circumstances, one of the franchisor’s affiliates will acquire real estate and construct a free-standing restaurant under the Pilot Construction Program. After the construction, a Subway franchisee will lease the premises.

The franchisor may loan money to franchisees in connection with a Subway restaurant. The terms and purposes of these loans are negotiable. The franchisor is free to change or eliminate these loan programs and equipment leasing program without any prior notice to franchisees.

  • Training

All intending Subway franchisees must attend and complete the training program that holds at Subway headquarters. In order to be certified by Subway that such a person has completed the program, he or she must have:

  • Perfect attendance
  • An 80% grade on all pre-requisite web-based training courses and in the in-store component of the course
  • An 80% average on the in-classroom quizzes

Classroom work accounts for approximately 53 hours, and franchisees will be given approximately 33 hours of on-the-job training at nearby restaurants.

The training is offered at Subway’s headquarters in Milford, Connecticut, with training also available in Australia, China, Germany, India, Montreal, Canada, and Miami.

  • Location

Subway franchisees are not provided an exclusive territory under the Franchise Agreement or any related agreement. The franchisor may grant franchisees limited exclusivity rights to a territory under its Exclusive Area Development Program.

Subway also provides its franchisees approved locations for their restaurants during their qualifying process. The franchisees are equally allowed to submit a location they find for approval. The company would then investigate the location and analyze its viability for development.

  • Terms of Agreement and Renewal

The length of the Subway franchise term is 20 years, with the exception of satellite restaurants and the School Lunch program. The franchise is allowed to automatically renew his or her franchise for an additional 20 year period/term, unless either party chooses not to renew. This renewal does not affect satellite restaurants and the School Lunch program.

The franchisor has the right to refuse renewal if franchisees are not in full compliance.

  • Obligations and Restrictions

Franchisees are mandated to attend and satisfactorily complete the required training program. Subway equally requires that its franchisees must give a substantial amount of time to running their restaurants, even if they decide to employ a manager to supervise their restaurant for them.

Franchisees must operate the restaurant in strict compliance with all required methods, procedures, policies, standards, and specifications of the Subway system in the Operations Manual and in other writings issued by the franchisor.

Initial Investment for Traditional Locations

  • Initial Franchise Fee – $15,000
  • Real Property – $2,000 to $12,000
  • Leasehold Improvements – $85,500 to $194,500
  • Equipment Lease Security Deposit – $4,500 to $7,500
  • Optional Security System – $2,450 to $3,550
  • Freight Charges – $3,500 – $5,800
  • Outside Signage – $2,000 to $8,000
  • Opening Inventory – $4,400 to $6,050
  • Insurance – $1,200 to $5,000
  • Supplies – $500 to $1,300
  • Training Expenses (including travel & lodging) – $2,500 to $4,500
  • Legal and Accounting – $1,000 to $3,500
  • Opening Advertising – $2,500 to $4,000
  • Miscellaneous Expenses (business license, utility deposits & small equipment) – $4,000 to $8,000
  • Additional Funds – three months $12,000 to $42,000

Estimated Total cost – $147,050 to $320,700

Initial Investment for a Non-Traditional Location

  • Initial Franchise Fee – $15,000
  • Real Property – $2,000 to $12,000
  • Leasehold Improvements – $29,900 to $77,000
  • Equipment Lease Security Deposit – $4,500 to $7,500
  • Optional Security System – $2,450 to $3,550
  • Freight Charges – $3,000 to $4,000
  • Outside Signage – $1,600 to $8,000
  • Opening Inventory – $4,400 to $6,050
  • Insurance – $1,200 to $5,000
  • Supplies – $500 to $1,300
  • Training Expenses (including travel & lodging) – $2,500 to $4,500
  • Legal and Accounting – $1,000 to $3,500
  • Opening Advertising – $2,500 – $4,000
  • Miscellaneous Expenses (business license, utility deposits & small equipment) – $4,000 to $8,000
  • Additional Funds – three months – $12,000 to $42,000

Estimated Total – $86,550 to $201,400

Other Fees

  • Royalty – 8 percent of total gross sales
  • Advertising – 4.5 percent of total gross sales
  • Insurance – $1,200 – $5,000 per year
  • Grand Opening Advertising – $2,000

Audit Overdue Amount

  • Fees for Unpaid Balances (when payment is more than one week late) Interest charge of 12%
  • Fees for Unpaid Balances (when the franchisee defaults on payments because of a bank change without notice) – $50
  • Fees for Unpaid Balances (bounced check or pre-authorized draft) – $20
  • Transfer – $7,500 plus $3,000 for any satellite (3,750, plus $1,500 for any satellite if the franchisee transfers to or transfers by adding their spouse or child to the franchise agreement)
  • Location Rent/License Fee – $1,000 to $6,000 per month
  • Equipment lease – $2.70 per month per $100
  • Equipment Lease (upon transfer) – Transfer fee of 5% of buyout price
  • Non-compete Violation – $15,000 for each competing store plus 8% of its gross sales
  • Trademark Violation – $250 per day
  • Operations Manual – $50, subject to change in the future
  • Optional Store Listing Service – $100 for each 90 day period
  • Subway Card Fees – Initial fee of approximately $200
  • Optional Customer Experience Program Fees – $3 per month

Liability

If the franchisee breaches the provisions of the Franchise Agreement regarding mandatory arbitration, or restrictions on damages or against whom he/she can arbitrate, or the proper forum for an action, the franchisee will pay Subway’s expenses and the expenses of anyone named improperly, including lawyers’ fees; the franchisee will be liable for abuse of process.

  • Probationary Case Management Fee – $500
  • Probationary Extension Fee – $250
  • Interim Order Case Management Fee – $250
  • Litigation Expense Fee to permit sale of restaurant -5% of gross consideration received for sale of restaurant, not to exceed $5,000
  • Customer Complaint Resolution Fee $2 – $20 per incident

Ongoing Support

Subway offers its franchisees some ongoing support to cushion the stress of operating the business. These supports include grand opening support, provision of a toll-free line, field support, meetings, newsletters, and the internet. Additionally, each franchisee is assigned a field consultant to help them meet the strict Subway standards of operation.

  • Marketing Support

Subway’s marketing support to franchisees includes co-op advertising, regional media, national media, and advertising.

  • Equipment Purchase

Subway equipment can be purchased out rightly with cash or with a secure loan. The Subway franchise system also offers an equipment leasing package that requires a security deposit of 10% of the equipment costs, with a minimum of $1,000. The lease payments are meant to last for 60 months. At the end of the lease term, the franchisee can purchase the equipment for 10% of its original value.

The security deposit will be applied towards the purchase. The equipment may be purchased at any time during the lease period using the buyout calculation schedule.

  • Veteran Incentives

Subway waives franchise fee if a franchisee is opening his or her restaurant on a military/government location. 50% is also removed from the franchise fee if the franchisee is opening on a non-government location but is receiving government financing.

Steps to Acquire a Subway Franchise

  • Do your Research

Researching the Subway franchise opportunity is all on you. You need to pose as a shopper if need be before you buy the franchise. This can be a great way to find out how the product/service is being sold and delivered. Ask about cost and quality. You need to find out how franchisees feel about the cost of goods they are receiving. Subway is an easy franchise opportunity to research because there are a lot of people who can give you information about it.

  • Request for the FDD

The FDD, short for Franchise Disclosure Document is a document that can run into hundreds of pages. It contains every information about the company and its franchise, and it equally comes along with the contact information of every franchisee holding the Subway franchise.

  • Prepare your Business Plan

A business plan is very important when intending to start a business, not to talk of a franchise of the magnitude of Subway. Your business plan would not only serve you when opening the business, but it would serve you all through the life of your business. So, you should endavour to prepare an in-depth business plan for your Subway franchise business. Your business plan, if well written would help you get loan to finance the purchase of your franchise.

  • Find the Funds

After you have written your business plan, it is now time to source for the fund to make your dreams a reality. Being that the funds required to acquire a Subway franchise is on the high side, the franchisee may have to get a loan. One of the sources to obtain loan for your business is the United States Small Business Administration. The SBA is a powerful ally of small businesses because of the power they have as guarantors of some small business loans. You can also get your loan from other sources.

  • Sign the Franchise Agreement

If you are able to secure your loan, then at this point you need to sign the attached franchise agreement. After signing this agreement, you are required to return it with your franchise fee and any other fees Subway requires upfront. You need to hire a lawyer or solicitor to help you arrange and tie up this process. Once this process is completed, you are officially a Subway franchisee.

  • Training

At this point, you are required to proceed for your intensive two weeks training. Note that you must pass all the exams before you are allowed to open your restaurant. 50 percent of the training takes place on the training location, while the other 50 percent takes place at a Subway store.

  • Open your Restaurant

After successfully concluding all these processes, you are now ready to open your very own Subway restaurant. Ensure that you carry out enough publicity before your opening day so as to create the required awareness.

The entire process, from start to finish, is estimated to take around 7 months, but you can hasten up the process or slow it further down if you wish.

4 Criteria for Becoming a Subway Franchisee

For you to own a Subway franchise, the company expects you to have fulfilled the following requirements.

  1. Obtain and maintain license: franchisees are expected to be able to obtain and maintain all licenses that would be required to open a store. This means that the franchisee has to be financially mature to handle the processes by himself.
  2. Have excellent credit: this is a very important requirement that all franchisees must fulfill. Without a good credit history, the franchisee may find it difficult to access loans, so having a good credit history is very necessary.
  3. No fraud records: the intending franchisee must not have any former record of felony convictions, or any other criminal record for that matter, that would likely taint the reputation of the company.
  4. Have requisite experience: the franchisee must have the required business/work experience. He has to have retail, operations or management experience; food experience (not compulsory) and past business ownership experience.

A Brief History of Subway

Industry Overview

  • Date of Incorporation – 1965
  • Founders – Fred DeLuca and Peter Buck
  • Franchising Since – 1974
  • Headquarters – Milford, Connecticut, United States
  • Estimated Number of Units – 44,780
  • Parent Company – Doctor’s Associates

Seventeen year old Fred DeLuca, just like every youngster, had a dream and his own was to become a medical doctor. Going to medical school required funds, one thing Fred didn’t have. Searching for a way to help pay for his education, a family friend suggested that he open a submarine sandwich shop in order to finance his dream from the proceeds of the shop.

His friend, Dr. Peter Buck offered to loan him $1,000 to start the store, and also offered to be his partner, and a business relationship was forged that would change the landscape of the fast food industry.

Unlike much of the fast food sold by restaurant chains, Subway products are typically not fried and are liberally garnished with fresh vegetables. Subway therefore is able to position itself as a purveyor of healthier fast food.

In 2002, Subway became the franchise with the highest number of outlets in the fastfood industry. In 2006, “personal pizzas” were introduced in some US markets. Breakfast and pizza items are only available in some stores. In 2009, Subway signed a deal to serve only Seattle’s Best Coffee as part of its breakfast menu in the United States.

As of 2013, Subway had branches in 102 countries of the world and a yearly revenue of $9 billion. From being a part time business, Subway has become one of the most popular chain restaurants in the world. Their consumer oriented approach made them one of the most successful companies of all time.

Another controversy the company was embroiled in was with the size of its sandwiches, as customers kept claiming that the sandwiches were shorter than the company claimed.

In 2017, Subway has recorded more than 45,000 stores located in 112 countries. These locations are largely concentrated in North America, with about 26,400 situated in the United States. The company also has about 3,300 outlets in Canada and 1,000 in Mexico.

Outside North America, the countries with the most locations are Australia which has approximately 1,400 outlets, and Brazil which boasts of 2,200 restaurants and the United Kingdom which has about 2,300 Subway outlets. The restaurant chain, Subway, generated around 11.3 billion U.S. dollars in sales in 2016 from its restaurants in the U.S.