With Tim Hortons being one of the most successful Canadian franchises, I’m willing to bet that you have wondered about the Tim Hortons business. that is specifically how much revenue/profit a single location generates and how much it costs to start one up.
While it’s apparent that owning a Tim Hortons is like having a money printing machine, most do not realize the costs involved, and how much an owner really takes home. When doing my research on the costs, I was surprised with how much the parent company takes off the top. I always thought that franchises had to pay in about 8%-9% royalty which includes marketing. But the numbers that I’ve been coming up with is in the range of 17% – 19% on gross sales! Then I realized that the Tim Hortons parent company actually builds the property and owns the land, so a large portion of the total royalty expenses is the rent charge.
How much does a Tim Hortons Franchise Cost?
As with any franchise, since the franchisee is getting a business that has track record of success, there is an added layer of cost. Not only do they need to cover typical operating expenses, Tim Hortons franchises need to pay a weekly royalty, monthly marketing fee (similar to royalty), and monthly rent. If that wasn’t enough, the start up costs are quite high. As mentioned, Tim Hortons will build the location, but the franchisee is responsible for the startup equipment and the initial franchise fee.
Here is a tally of the ongoing costs from the Tim Hortons website:
- a weekly Royalty fee of 4.5% of gross sales for the term of the License;
- a monthly Rental fee (which is the greater of a fixed minimum rent or 8.5% of gross monthly sales);
- a monthly Advertising levy of 4% of gross sales for the term of the License.
This works out to be a 17% of total gross sales per month – that is before any other expenses are paid!
Here are the startup costs:
The cost of a full Canadian franchise varies from $430,000 to $480,000* (CDN$) (plus all applicable taxes). At least $144,000 of the franchise cost must be unencumbered (cash or liquid assets), in addition to $50,000 in working capital (also unencumbered). The remaining amount may be financed through the chartered banks, upon approval of a franchise.
Included in the cost of a franchise is the following:
- all equipment, furniture, display equipment and signage
- 7-week training program in the Oakville, ON Tim Hortons University
- a store opening crew to assist in the opening of a Tim Hortons restaurant (for a maximum period of two weeks)
- the use of all Tim Hortons Manuals
- right to use the Trademarks and Trade names
- support from the head Office personnel
I’ve read on the U.S Tim Hortons site that they offer an incentive program for new franchisees. It doesn’t appear to be available to Canadians, but the offer is basically a reduced royalty for 24 months (4.5% -> 2.5%).
How much does a Tim Hortons Franchise make?
Information on franchise profits was a little harder to come by as it’s not openly shared information. From my digging around, I’ve read that average franchisees (in 2006) made around 16%-20% profit after all expenses but without real numbers for backup. However, the big court case between franchisees and the parent company in 2011 made some of the numbers public.
In 2008, the average Tim Hortons franchisee profited $265k after all expenses. We don’t know the actual average revenue numbers for 2008 to earn the $265k, but they disclose that between 2002 and 2008, the average franchise earned (before interest and taxes) $1.5M which fits franchisee profit range of 16%-20%.
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