Franchise Rules of Thumb

We have listed franchises with a “quick” rule of thumb, or range, usually expressed as a percentage of sales. For many of them we have based it on quite a few actual sales; others may have been based on just a few; and in some cases just one where we felt it was appropriate. They can be a good starting point for pricing the business.

Many of the franchises are well known while others are very new with just several units. By the time this goes to press, some of the franchises may have folded, sold or merged. We try to keep this as up-to-date as possible. We could use your help. To contribute to our ever-growing list, just go to our Web site and click on Franchise Update and complete the form that will show up and email to us at tom@bbpinc.com and also if you find that a franchise has disappeared or merged, etc, please let us know. Obviously the big changes such as Mail Boxes to UPS Store will be caught by us or by our researchers (hopefully).

Keep in mind that rules of thumb are just that. Every business is different and rules of thumb will never take the place of a business valuation or even an opinion of value. But, they will give you a quick ballpark idea of what the business might sell for everything else being equal. A rule of thumb will tell you whether a seller is in the ballpark when he or she tells you what they think their business is worth or what they want to sell it for.

For up-to-date information and for those companies where the number of units is not shown, track down their Web site. Read the footnotes where indicated. Also, additional information is usually available under its own listing in this Guide. We have listed every franchise listed below, and others where information was available, by itself alphabetically by name within the Rules of Thumb section. In some cases, there is the Estimated Annual Sales per Unit and the Approximate Total Investment.

Remember, that rules of thumb are not intended to create a specific value or to be used for an appraisal. They supply a quick “ballpark” price range. They can provide a starting point for pricing a business or a sanity check after performing an informal valuation. Read the How to Use Section of the Guide, in the front, to gain some insight on how to make some adjustments to make the rule of thumb a bit more accurate.

Several other factors can greatly influence the selling price of a franchise. One is the question of the transfer fee levied by the franchisor and who pays it. This amount can be substantial, so find out the information on this prior to going to market. The second is the franchisor requiring a major change in outside appearance and a change in the interior of the unit — or both. This should also be investigated before attempting to sell it. The costs involved in either requirement can be substantial.

(1) Sales seem to indicate that smaller sales bring a higher multiple (50% +) than stores with sales over a million, which seem to bring lower multiples. Price is plus inventory which may be the cause of lower multiples for larger stores.

(2) $1,000 to $1,800 per team in sales; selling price – $2,000 to $2,500 per team

(3) 3 – 4 times earnings

(4) 2 times annual EBIT, plus inventory & equipment

(5) Master/Area developer – Sell for 3 to 5 times earnings plus some blue sky for size and potential of market (some cases).

(6) Prices for Curves for Women seem to be all over the place. Some sales have been reported at 75+% of sales. One sale reported was 1.31 times sales for four units.

(7) In … Dunkin Donuts shops now sell for 75 – 125% of annual sales, depending mainly on geography. It’s about 125% in New England, 100% of sales in the Mid-Atlantic States, and lower in the South and Midwest. There really is not a Dunkin Donut market in the West. A sale in Colorado was reported that sold for 22% of sales.

(8) Eagle is a Texas-based franchise www.eagletransmission.com. They are the strongest transmission franchise in the Dallas area with 21 locations and are a minor player in Houston and Austin. The attraction is the royalties at 4% in Dallas and 6% Houston and Austin, and the training is “hands on” locally.

(9) These stores sell for maximum 2 times SDE versus $120,000 to $150,000 + for new. 10 to 12 sales have been reported at 2 times SDE for absentee owner stores (most are) and 2 times SDE + manager’s salary of owner operated.

(10) 3.3 – 3.4 times SDE

(11) Netted $2,100,000 and seller retained 20% of ownership

(12) One sold for 80% of sales, but it was located in an office building with vending rights

(13) One MaggieMoo’s Ice Cream & Treatery sale was reported at 92%, three years old, great location, growth at 15% approx a year; but only 15% down payment

(14) 1 – 4 times SDE plus hard assets. The number between 1 – 4 depends on several factors such as the owner operating a truck, etc.

(15) Pizza factory has approximately140 units in the 10 Western States.

(16) Quiznos, which has struggled as a higher-priced alternative to Subway, has closed an estimated 1,000 of its U.S. shops (the company won’t confirm the number) and has begun putting mini-stores in gas stations in a bid to boost sales. April 2011, www.msn.com

(17) One sale was reported at 70% of sales.

(18) “As a former multi-unit Subway franchisee and a Development Agent, now a business broker Subway stores, there are many different formulas I have seen. 30 to 40 weeks sales, or 60 to 70% of sales is a popular one. Actual sales price depends on supply and demand and is closer to 70% of sales in So. CA.” “On stores with gross sales of $300,000 to $500,000, multiple of 40% of annual sales. On stores with sales of $500,000+, multiple of 50% of annual sales. Franchisor would like 30% as a down payment on resales.” “I would suggest for Subway, in New England and maybe all of New England, due to the high number of pizza restaurants, Subways tend to sell for a much lower of percentage of sales than 47% — sometimes as low as 20 – 25%.”

(19) Price does not include cost of vehicles, and revenues do not include auto sales.

(20) The only sale reported of Papa John’s was a 3-store chain which sold for $475,000 with $150,000 down and grossed $1,191,700.