Franchise cost comparison, brand against brand

Item 7, the cost to open, is only an estimate rather than a set price. Under federal rules, a brand can state a low figure and a high figure when the true amount can't be known ahead of time. What you actually spend can shift with rent, construction work and how big the site is.

Jimmy John's shows how to think about a range. Its FDD lists the cost of opening one of its shops at $366,200 to $733,500. Planning around the high end is the safer choice, since it's nearer to what you might need if expenses climb.

When you put two brands side by side, match low ends with low ends and high ends with high ends. A brand can look cheap at the bottom of its range and still be expensive at the top. There's more on this in our cost-to-open guide.

You pay the upfront franchise fee (Item 5) a single time, at the moment you join. The royalty (Item 6) is a slice of sales, or sometimes a set amount, that goes to the brand week after week or month after month, for as long as you operate.

Plenty of brands also charge a marketing fund in addition to the royalty. Firehouse Subs, for one, charges a $20,000 joining fee, plus 6% of gross sales as a royalty and another 5% for marketing. Put together, both shares of sales head to the brand every period.

Royalties roll on for years, so over time a small gap in the percentage can outweigh a gap in the one-off fee. Add the marketing fund to the royalty when you work out what leaves your account each period. The fee and royalty guide explains this in more depth.

Each FDD includes a section for sales or earnings data (Item 19). Whether to publish actual figures is up to the brand, and some choose not to. When figures do appear, they tend to be sales rather than profit. Rent, wages and supplies all still have to be paid from that money.

The headline number is just whichever figure the brand decided to feature. Jersey Mike's, for instance, features $1,367,578. On its own, that figure says nothing about which locations it covers or what it actually measures.

So before you weigh one brand's headline against another's, look at what each figure includes. It also can't predict what your own location would bring in. The guide to sales and earnings figures walks through how to make sense of them.

Every FDD uses the same federal layout, set by the FTC Franchise Rule. So the same item number deals with the same topic in each brand's documents. That doesn't mean every brand calculates its estimates the same way, which is why a fair comparison still needs some care.

You'll get the most from comparing brands in a similar line of business, since a sub shop and a cleaning service operate very differently. For each brand, check four things:

• the complete cost-to-open range
• the royalty plus the marketing fund, taken together
• whether the brand shares its sales figures
• the number of outlets currently open

Item 20, the outlet and owner list, is where the outlet count comes from. That list also includes names and contact details for current owners and for anyone who left during the past year. You can use it to ask owners about their real costs, though it won't tell you how many would be willing to chat. The outlet list guide covers what else it reveals.

Every brand is included in the full table. On each brand page, figures are tagged with their item number and FDD year, with a link to the filing, so you can verify any number on your own.

Once you know the cost to open, the usual next step is figuring out how much a loan might cover. Bank loans for exactly this are guaranteed by the SBA, which is the U.S. Small Business Administration. The franchise financing page shows how the cash you have connects to how large a project an SBA-backed loan could support.