Domino’s Franchises $1.3M AUV Worth the Upfront Cost (2023)

With over 15,000 restaurants worldwide and a relatively affordable cost ($10,000 franchise fee and $400,000 investment), Domino’s franchises are very popular globally, not just in the US.

But does the price reflect the profit potential? That’s what we will look into in this article.

We will have a look at how much it costs to open a Domino’s franchise, how much you can expect to make with this business and how profitable this franchise really is. Let’s dive in!

Key stats

Franchise fee	$10,000
Royalty fee	5.5%
Marketing fee	6.5%
Investment (mid-point)	$399,000
Average sales	$1,286,000
Sales to investment ratio	3.x
Payback period	4 years
Minimum net worth	$250,000
Minimum liquid capital	$75,000

About Domino’s

Domino’s is an American multinational pizza restaurant chain that operates more than 15,000 stores globally with over 5,650 stores in the US, 1,500 in India, and 1,250 in the UK.

While Pizza is the mainstay of their business, they also sell bread bowls, pasta, and oven-baked sandwiches along with chicken products, beverages, and desserts.

Domino’s took over the operations of another small pizza restaurant chain named DomiNick’s in 1960. After the takeover, the DomiNick’s was renamed as Domino’s and then the chain saw exponential growth, reaching 200 stores as soon as 1976.

Domino’s started its international expansion in 1983, and in the same year Domino’s opened in 1,000^th store. The company kept growing and today it operates across 5,701 cities in 83 countries.

Domino’s franchise: pros and cons

There are several advantages and disadvantages of buying a Domino’s franchise and they include:

Pros

• Domino’s franchise comes with low capital requirements because most stores follow carry-out delivery model which requires a small location, and hence small investment and maintenance
• Domino’s uses technology to its advantage and since they have a mobile app with over 5.6 million downloads in the US alone, a franchisee can quickly ramp up sales through online ordering
• The primary product offered by the chain does fairly well in harsh macroeconomic conditions (example: for less than $25 including tip, a pizza can feed a family of four)
• Domino’s offers discounts on their franchise fee and investment costs for women, veterans, and minority groups

Cons

• There is a tough competition in the US market from players like Papa John’s, Yum Brands’ and Little Caesar Pizza
• Raw materials used by Domino’s are subject to random price hikes, which can increase the operational costs and reduce profits
• There is no territory protection provided by Domino’s, which means that there can be multiple Domino’s stores in the same location. This will lead to profit sharing by the franchisees

How much does it cost to open a Domino’s franchise?

You must invest on average $399,000 including a $10,000 initial franchise fee to open a Domino’s franchise. 

Of course, this is simply an average and varies based on a number of criteria (size of the restaurant, location, etc.). As per the latest FDD, the amount the franchisee must invest ranges from $107,450 to $682,500.

This amount covers everything from formation to operation costs; such as leasehold improvements, furniture, equipment, 3 months’ rent, a security deposit, insurance, marketing fee, etc.

Here’s a summary of the different costs you should pay for:

Type of Expenditure	Amount
Initial Franchise Fee	$0 – $10,000
Formation costs	$73,200 – $490,000
Operating expenses	$34,250 – $182,500
Total	$107,450 – $682,500

The amount also depends on the type of Domino’s franchise you are opening. To give you an idea, you would invest much less for a non-traditional store than a traditional store.

Indeed, traditional stores are retail outlets located in shopping malls and strip centers. Instead, non-traditional stores are located in office buildings, airports, gas stations, toll roads, etc.

Type of restaurant	Investment
Non-traditional store	$107,450 to $648,500
Traditional store	$156,450 to $682,500

What is the turnover of a Domino’s franchise?

A Domino’s franchised restaurant makes $1,286,000 in sales per year on average.

Domino’s franchises’ median sales have been steadily growing over time, here’s the trend in revenue from 2017 to 2021:

How profitable is a Domino’s franchise?

Unlike most other quick-service restaurant franchises, Domino’s provides a lot of insights into the profitability of its franchises.

Of course, profits increase with scale: the more sales you can generate with your franchise, the higher the profits. That’s simply because of operating leverage: although variable costs grow in line with revenue, fixed costs do not.

For example, whilst gross margin varies between 16% to 25% for stores with annual sales under $520k and above $1.3M respectively, EBITDA margin jump from -9% to 15% instead.

You’re heard that right: the most profitable Domino’s franchises have EBITDA margins of up to 15.1%.

Is a Domino’s franchise a good investment?

We just saw that Domino’s franchises can reach EBITDA margins of up to 15%. The higher the sales, the higher the profits. But does this mean that Domino’s franchises are good investments? Do the profits justify the average $400,000 investment upfront?

In order to answer that question, we need to look at the payback period: how long does it take you to recoup your original investment?

In order to calculate payback period, we divide the investment by net profits. As per our analysis, the average net profit margin for a Domino’s franchise is around 8% of revenues (12% EBITDA margin).

Therefore, using the average annual sales per store ($1,286,000), we obtain an excellent payback of 4 years, in line with the average payback period for quick-service franchise restaurants.

Looking at it from the payback angle, even though net profit margin is lower than most other franchises (~8% vs. 15% as per our analysis), the payback period is still under 4 years, which is very good.

As such, we could argue that Domino’s franchises are great investments as it takes 4 years to recoup your investment.

How does Domino’s compare vs. other franchises?

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