How Much Does it Cost to Open a Papa John’s Franchise?

Papa John's

The Papa John’s brand has received some negative publicity recently, but over the years it has proven to be a marketable brand. NFL fans have seen Peyton Manning and Papa John’s teaming up on ads, and up until about a year ago it gained some sales momentum.

Acquiring a Papa John’s franchise is comparatively easier when looking at other major brands such as McDonalds and Taco Bell. At the same time they have some unique requirements, so though you may meet the financial requirements you may fall short in other areas. Let’s take a look at the process.

To begin with, you will need a minimum net worth of $250,000 and upfront cash of $75,000 or a combination of cash and liquid assets. You will also need to have the ability to finance a minimum of $275,000 towards the store. Then there is the franchise fee of $25,000 to get you licensed as a legitimate owner.

(Note: Papa John’s is temporarily waiving its franchise fee for new owners. In addition, in order to incentivize new franchises, the company is also reducing the royalty fees for the new owner’s first four years of operation, and throwing in a free set of new ovens. This is likely the result of its current reputation issues and declining sales.)

After your store becomes operational, prepare to pay the company a Royalty Fee in the amount of 5% of your net (not gross) sales and an Advertising Fee of 8% of the same net sales, every month. However, that Royalty Fee is graduated over a period of time. You will not pay and Franchise Fee for your first 18 months in business. The next 18 months will have you paying 1% of net sales, followed by an increase of 1% per year until you reach the maximum 5%.

But the Papa John’s franchise process is no ordinary one. First, the $250,000 net worth can buy a number of franchises. To secure multiple franchises all you have to do is to secure the financing and find the appropriate number of partners. You can buy up to 10 stores with a net worth minimum of $1 million. More than 10 doubles the net worth requirement to $2 million.

But there’s more. You cannot go it alone. You will have to have at least one partner. And you will need to have experience in business management, living within a reasonable distance to the store or stores you are operating. The general idea seems to be that handing over a franchise license is a long term proposition. The combination of money and management experience is a buffer for unforeseen events.

Now that you have all the financials out of the way, the next step is getting the training and support you need. There are marketing directors at the international, national, and regional levels to help you gain momentum. They will help you with everything from site selection to risk management services.

Product is critical for any food franchise. Papa John’s has an exclusive PJ Food Service unit where you can get all the ingredients and supplies needed, so think of it as a one stop shopping service for your store. Since almost every Papa John’s store uses the PJ Food Store, the cost savings to every store owner is significant.

There are a few other considerations before you decide to jump into the pizza franchise arena.

In terms of annual profit, Papa John’s is on the lower end of the Top 50 rankings, making just over $875,000 per store on average. The startup figure of $300,000 may be considerably higher, as it is based on opening a store in a strip mall with floor space of between 1200 and 1400 feet. Move out from the strip mall and expand that floor space, and you will be making a significantly higher initial investment.

The aforementioned requirement of business management experience does not need to be in the food or fast food industry. In fact, Papa John’s prefers your inexperience in this area so you don’t crossover business models and operational techniques from previous ownership. To be consistent with this business philosophy, they have ongoing training programs available for all store owners.

Opening a Papa John’s franchise is different than many other fast food franchises you may have explored. The investment requirements clearly are designed for people who want to commit to a long term business relationship with Papa John’s, and who are ambitious and want to grow quickly – if possible. There are franchises that are more profitable on an annual basis, but how many allow you to grow as quickly as Papa John’s with significantly less capital?

The math says that making an annual profit of $875,000 per store for 5 stores is greater than making a $1.2 million profit on a single store. ($4.375 million > $1.2 million.)



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