How Profitable is a Freddy’s Franchise? Costs & Profits (2023)

With 420 restaurants across the US, Freddy’s Frozen Custard & Steakburgers is another popular steakburgers franchise among franchisees and for a good reason too: it takes on average 5.4 years for you to repay your investment if you were to buy a Freddy’s franchise.

It does sound like a profitable investment. In this article we’re looking a little deeper into Freddy’s franchised-owned restaurants from the point of view of its Franchise Disclosure Document.

Especially we’ll see how much turnover you can expect to generate with a Freddy’s restaurant, how much the franchise really costs, and whether you should buy it. Let’s dive in!

Key stats

Franchise fee	$30,000
Royalty fee	4.5%
Marketing fee	2.5%
Investment (mid-point)	$1,537,000
Average sales	$1,758,000
Sales to investment ratio	1.1x
Payback period*	6 years
Minimum net worth	$1,000,000
Minimum liquid capital	$400,000

What is Freddy’s Frozen Custard & Steakburgers?

Freddy’s Frozen Custard & Steakburgers is a leading fast-casual restaurant chain headquartered in Wichita, Kansas. 

Launched in 2002 by Scott Redler and two entrepreneurial brothers, Billy and Ray Simon, this restaurant chain is famed for its tasty steakburgers, frozen custards, French fries, milkshakes, hot dogs, chicken sandwiches, and soft drinks. 

Freddy’s Frozen Custard & Steakburgers began franchising in 2004 in Hutchinson, Kansas. 

As of 2023, Freddy’s Frozen Custard had 420 units in the US of which 391 franchised-owned.

Freddy’s franchises pros and cons

Pros

• Training and support: franchisees get trained on the basics of in-restaurant management. Everything happens Freddy’s way from food prep to site delivery and inventory control. This includes 348 hours of on-the-job training and 67 hours of classroom training. After this, you become part of a reputable team committed to delivering quality. 
• Ongoing support: Freddy’s Frozen Custard & Steakburgers provides ongoing support to help franchisees master crucial business details. The package includes meetings and conventions, online support, field operations, security and safety procedures, and site selection. 
• Marketing support: franchisees may take advantage of the restaurant chain’s strong brand and valuable marketing and promotional tools to optimize customer growth. The supported marketing tools include regional advertising, SEO, ad templates, email marketing, website development, social media, and national media. 
• Exclusive territories: as part of the Franchise Agreement, franchisees get exclusive rights to run their businesses at the designated locations. This gives restaurant owners a competitive advantage and an opportunity to build a thriving business.

Cons

• No absentee ownership: franchisees must be involved in critical business operations because this restaurant chain doesn’t allow absentee ownership. 
• No part-time commitment: restaurant owners will be required to commit to day-to-day operations as Freddy’s franchise isn’t a part-time business.
• 30 employees required to run the franchise: Freddy’s Frozen Custard & Steakburgers requires a minimum of 30 employees to run a new restaurant. 
• Franchises can’t be run from home or as a mobile unit: an office space or retail facility is mandatory to run the franchise. 
• Competition: the franchisor faces serious competition from other established brands like Burger King, Jack in the Box, and Smashburger

How much does a Freddy’s franchise cost?

You need to invest around $1,537,000 to open a Freddy’s Frozen Custard & Steakburgers restaurant, on average.

As this number is an average, it may change depending on various factors like location, the format of the restaurant, its size, etc. To give you an idea, a restaurant with drive-thru is 1.8x times more expensive than a non-drive-thru restaurant.

According to the latest Franchise Disclosure Document (FDD), the investment ranges as follows:

• Without drive-thru: $794,254 – $1,439,105
• End cap with drive-thru: $1,032,968 – $2,292,291
• Standalone with drive-thru: $1,142,828 – $2,523,239

What does this investment pay for? From formation costs to the first 3 months of working capital, the investment covers it all. Indeed, in addition to the initial franchise fee, the investment pays for leasehold improvements, signage, equipment, first months’ rent and the security deposit, insurance, grand opening fees, etc.

Here’s the cost breakdown between the main cost categories:

Type of Expenditure	Low	High
Initial franchise fee	$30,000	$30,000
Formation costs	$968,468	$2,159,291
Marketing fees	$2,500	$5,000
Operating costs	$32,000	$97,000
Total	$1,032,968	$2,292,291

What’s the turnover of a Freddy’s franchise?

On average, a Freddy’s Frozen Custard & Steakburgers franchise makes $1,758,000 in sales per year.

This sales number represents the annual median sales of 384 restaurants operating in 2022.

This sales number is an average. Indeed, it may change depending on the format of your restaurant, its menu, the location, customer demand, competition, etc. For example, a drive-thru restaurant generates ~60% more revenue than a non-drive-thru restaurant. 

Type of restaurant	Number of restaurants	Median sales
In-line without drive-thru	4	$1,252,349
End cap with drive-thru	32	$1,660,042
Standalone with drive-thru	348	$1,772,062
Total	384	$1,792,929

How profitable is a Freddy’s franchise?

On average, a Freddy’s Frozen Custard & Steakburgers franchise makes $382,305 in profits per year. This represents a 21% adjusted EBITDA margin. 

The 21% adjusted EBITDA margin is on the lower end compared to similar franchises as per our intelligence (~25-27% industry average). This is due to high prime costs (~64%) i.e COGS and labor costs vs. industry average.

Note that we used COGS, labor, and rent costs from company-owned restaurants’ data as Freddy’s Frozen Custard & Steakburgers doesn’t provide any cost information for franchised-owned restaurants in its FDD.

Profit-and-loss	Amount ($)	As % of sales
Sales	$1,792,929	100%
COGS	$(570,151)	31.8%
Labor	$(586,467)	32.7%
Rent	$(128,500)	7.2%
Royalty + marketing fees	$(125,505)	7.0%
Adjusted EBITDA	$382,305	~21%

You should note that this adjusted EBITDA does not represent net income. Instead, you would need to also deduct taxes, debt interest expenses and other non-operating costs to get to net income.

Is a Freddy’s franchise a good investment?

If we compare the upfront cost of $1,453,040 to the expected annual net profit, we obtain what we call the payback period.

In other words, we calculate how many years it would take you as a franchisee to repay your initial investment.

For Freddy’s, we found that the payback period is 5.4 years, which is a good, and as such a good investment. Indeed, anything around 4-5 years is good, and below 4 years is excellent.

Think about it: you would need to wait only 5 years to repay your investment, whether from your own funds or from the bank. Only then you would be able to make profits.

How does it compare vs. other franchises?

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