Big O Tires Franchise: Revenue, Costs & Profits (2023)

Since it started franchising 40 years ago, Big O Tires has expanded massively to become the leader retail tire franchise with 466 shops in the US, of which the vast majority is franchised-owned.

As a franchisee, you would need to invest on average $888,000 to open a new shop. With an average revenue per shop of $2,419,000 in comparison, Big O Tires may seem like a great business. Is it really? How profitable is a Big O Tires franchise?

In this article we’re looking at Big O Tires and its latest Franchise Disclosure Document to find out how much it (really) costs and how profitable it really is. Let’s find out!

Key stats

Franchise fee	$35,000
Royalty fee	4.25%
Marketing fee	4.90%
Investment (mid-point)	$888,000
Average sales	$2,419,000
Sales to investment ratio	2.7x
Payback period*	7 years
Minimum net worth	$300,000
Minimum liquid capital	$100,000

What is Big O Tires?

Big O Tires is an American retail tire franchise headquartered in Palm Beach Gardens, Florida.

The franchise was founded in 1962 by Harold V. James when it split from OK Tires. It operates retail stores, selling and servicing tires and related automotive products as well as maintenance and replacement services such as lube, oil and filter changes engine, cabin air filters and brake service.

The Big O Tires’s franchising journey began in 1982 and now has over 465 locations in the US. It is a subsidiary of TBC Corp., along with Midas. 

Big O Tires franchises pros and cons

The pros:

• Site selection and construction: Big O Tires provides its franchisees with site selection guidance regarding population, size and dimensions, traffic flow, access and exits. It also provides them with floor plan prototypes and equipment layouts for their stores.
• Marketing strategies: The franchisor assists its franchisees with robust marketing and advertising techniques to help their centers grow. These include expert national marketing, regional advertising, social media and local marketing campaigns.
• Franchise training: The franchisor has a detailed online and classroom program for franchisees to learn how to establish and grow their tire centers. It trains them on the best practices, customer service, inventory management, bookkeeping and leveraging excellent vendor relationships.
• Flexible franchise models: Big O Tires offers its franchisees two franchise models to choose from: product distribution franchises and business format franchises. Franchisees can also choose to open a new store, convert their existing store or explore the possibility of taking ownership of an existing store, which gives them the freedom to operate according to their interests and budgets.
• Exclusive territory protection: The franchisor grants the franchisees the right to operate in a designated trade area. It does not authorize any other franchise or itself to establish a competing unit in the agreed-upon area.
• Financial assistance: Big O Tires offers its franchisees financing through third-party lenders for the franchise fee, startup costs, equipment, inventory and payroll.
• Extensive ongoing support: The brand offers its franchisees management and ongoing support to grow their franchises. It also provides them on-site visits and continuous support from franchise business consultants.

The cons:

• Not a passive investment: The franchise does not present an absentee ownership opportunity. The franchisees must be actively involved in the daily operations of their franchises.
• Not a home-based business: A Big O Tires franchise cannot be operated from a home or mobile unit. Franchisees must have an office space, warehouse or retail facility.
• Competition: The franchise faces competition from Christian Brothers Automotive, Sullivan Tire Co. and Tire Distributors Inc.

How much does a Big O Tires franchise cost?

On average, the initial investment required to open a Big O Tires franchise is $888,000.

Note that this investment amount is higher than the average investment required for other automotive franchises, which typically ranges from $600,000 to $1,200,000.

However, the actual investment amount can vary based on several factors, such as the franchise location, size, and other operational costs.

According to the latest Franchise Disclosure Document, the investment ranges between $333,500 $1,441,800.

Startup costs

The investment covers all the startup costs you may need to start a tire shop or auto franchise.

You must pay the franchisor an initial franchise fee of $35,000. You will pay $10,000 when you submit the franchise application and the rest when you sign the franchise agreement.

In addition to this franchise fee, the investment also covers:

• Formation Costs: leasehold improvements, fixtures, equipment, training expenses, construction, remodeling, decorating expenses, computer system, signs, etc.
• Initial Marketing: grand opening advertising
• Operating Costs: initial inventory, first 3 months’ insurance, rent, working capital, etc.

Type of Expenditure	Low	High
Initial Franchise Fee	$10,000	$35,000
Formation Costs	$185,500	$1,051,300
Initial Marketing	$10,000	$50,000
Operating Costs	$128,000	$305,500
Total	$333,500	$1,441,800

How much revenue does a Big O Tires franchise make?

On average, a Big O Tires franchise generates $2,419,000 in revenue per year.

This is actually the median gross sales of 417 franchise-owned shops as disclosed in the FDD. Indeed, revenue per shop varies a lot: the lowest revenue recorded in 2021 was $380,000 and the highest $10,480,000..!

Here’s a breakdown of the 417 franchise-owned shops and their median revenue by quartile (from the less performing 25% to the top 25%).

As you can see, the top 25% franchises (so roughly 100) had a median revenue per year of $3.7 million, almost 3x as much as the lowest performing 25% ($1.3 million).

How profitable is a Big O Tires franchise?

A Big O Tires franchised shop makes on average $229,000 in profits per year.

Big O Tires indeed is a profitable franchise: the 9% EBITDA margin is in line with the automotive franchise industry as per our own benchmarks.

Note that we didn’t invent anything here: unlike most franchises, Big O Tires provides a detailed profit and loss and cost analysis in its latest Franchise Disclosure Document. As for revenue, it provides a detailed profit and loss by quartile, yet for simplicity we have chosen below to show you the average of all franchises instead.

Profit and loss	Amount	% revenue	Source
Revenue	$2,609,321	100%	as per FDD
COGS	$(1,153,411)	44%	as per FDD
Gross Profit	$1,455,911	56%	as per FDD
Staff	$(624,493)	24%	as per FDD
Advertising	$(98,009)	4%	as per FDD
Royalties	$(107,524)	4%	as per FDD
Occupancy	$(151,739)	6%	as per FDD
Utilities	$(25,790)	1%	as per FDD
Other operating costs	$(219,028)	8%	as per FDD
EBITDA	$229,329	9%

Is Big O Tires a good franchise investment?

So should you buy a Big O Tires franchise? Are the profits worth the initial investment? We think so. Let us explain:

Even though you would invest $888,000 upfront on average to open a new franchised shop, you would on average make $2,419,000 in revenue per year. Assuming a 5% net profit margin (which makes a lot of sense given the 9% EBITDA margin above), you would reimburse the $888,000 investment within 7 years on average.

This is what we call the payback: the time it takes for an investment to be repaid with the profits it generates.

So Big O Tires has a 7 years payback as per our estimates. It’s not only a great payback, but it’s also in line with the automotive franchise industry.

I guess you could say Big O Tires is a good franchise investment based on these numbers. Yet, keep in mind this payback is based on 2 things: the average performance of the franchises disclosed in the FDD, and some estimates of ours (profits). Therefore, there is no guarantee your franchise will perform as well.

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