In January 2008, for the very first time, 7-Eleven, inc. unseated Subway as the #1 franchise on Entrepreneur’s: 29th Annual Franchise 500 list.
I think the reason they are finally #1 is a combination of a strong brand image, aggressive franchising in 2007 (1000 stores in the US), and as compared to other franchises … affordable start up costs.
So if you are considering being a 7-Eleven franchisee, here are your options:
- Become a 7-Eleven Licensee
- This means you will be paying 7-Eleven to license the use of the trademark in a particular region or territory. This gives you the ability to build as many locations as you would like in that territory with almost complete control over every detail of the business. This was not what I was referring to when I said “affordable start up costs”.
- Become a 7-Eleven Franchisee
- This means you will be paying 7-Eleven for the right to run a 7-Eleven store, utilizing the trademark and executing on all the things required by the franchise agreement. This option gives you very limited control of the business, but provides steady sales and profits.
- This is by far the most common option for most entrepreneurs.
- You can not open your own location, you can only purchase an existing location from the company (or outgoing franchisee).
- There are two main costs:
- Franchise Fee – the money you pay to 7-Eleven, inc., this will be equivalent to 20% – 30% of they yearly gross profit of the specific location. The higher the store’s gross profit, the bigger the percent charge.
- Goodwill – the money you pay to the outgoing franchisee for purchasing a franchised store. This charge could be anything that the outgoing franchisee wants to charge. But to come up with an estimate I recommend either using 20% of store sales, or 3 years of the Franchisee’s net income. WHICH EVER IS MOST BENEFICIAL TO THE FRANCHISEE. If you are buying a corporate store there is no goodwill charge (this is typically a much more profitable business to purchase).
- The Inventory of a 7-Eleven is financed, so you do not need to worry about having additional money tied up. If you do not want to have your inventory financed you could deposit additional funds into your 7-eleven account to avoid paying interest on the inventory.
Here are three rough estimates for franchised 7-Elevens with no gas:
- Below average yearly sales volume – $900,000, 37%GP
- Franchise Fee = 0.20 * $900,000 * 0.37 = $66,600
- Good Will = 0.26 * $900,000 * 0.37 = $86,580
- Total cost = $153,180
- Close to average yearly sales volume – $1,300,000. 36%GP
- Franchise Fee = 0.25 * $1,300,000 * 0.36 = $117,000
- Good Will = 0.70 * $1,300,000 * 0.36 = $327,600
- Total cost = $444,600
- Above average yearly sales volume – $2,000,000, 35%GP
- Franchise Fee = 0.30 * $2,000,000 * 0.35 = $210,000
- Good Will = 0.65 * $2,000,000 * 0.35 = $455,000
- Total cost = $665,000
The Franchise Fees listed here would be very close to the actual fee you will pay to 7-Eleven, inc. for stores with these sales and gross profit numbers, but as I mentioned before the goodwill is just an estimate of what I would expect an outgoing franchisee to charge.
If you are considering purchasing a 7-Eleven and would like unbiased answers to all of your questions as well as advice on specific store locations: