UPS Store Franchise Cost Too High? (2024)
The UPS Store started off as “Mailboxes Etc” back in 1980. It functioned as an alternative service to the U.S. post office. Following a rapid growth within that same year, its founders Gerald Aul, Pat Senn, and Robert Diaz soon after, sold their first franchise that later opened in San Diego, California. From there, the business continued to grow exponentially, until 21 years later they acquired UPS. Today, The UPS Store has over 5,000 stores across Canada, Puerto Rico, and the United States. Additionally, it is currently headquartered in San Diego, California, and is led by its President, Tim Davis. He has been serving the company since early 2002.
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How Is UPS Store Franchise Positioned in the Industry?
UPS and FedEx dominate the US logistics industry — in particular, last-mile delivery, where a courier brings a customer their order. FedEx estimates that more than 95% of all e-commerce orders in the US are delivered by itself, UPS, or the US Postal Service (USPS). They operate one of the largest airlines and one of the largest fleets of alternative fuel vehicles under a global UPS brand, delivering packages each business day for approximately 1.7 million shipping customers to 11.8 million delivery customers in over 220 countries and territories. In 2021, UPS delivered an average of 25.2 million packages per day, totalling 6.4 billion packages during the year. Total revenue in 2021 was $97.3 billion.
UPS Store Franchise Requirements
The UPS Store requires prospective franchisees to have between $75,000-$125,000 in liquid assets. They can meet this requirement with any combination of cash, bonds, stocks, mutual funds, retirement accounts or other non-borrowed sources. UPS talks more about the financial obligations of opening a franchised location here.
How Much Does Opening a UPS Store Cost?
The initial UPS Store Franchise Fee is $29,950. You have to pay this upfront fee when opening a UPS Store franchise. The fee, however, reduces to 19,950 for second and subsequent franchised locations. For “Underserved Groups,” the fee reduces to $14,950.
The estimated total investment necessary to begin the operation of a UPS Store Franchise ranges from $240,959 to $508,472. The following costs are part of the upfront costs included in the initial investment for a UPS Store. Many of these are one-time fees that are needed to launch the franchise.
UPS stores come in two basic flavors: Blue Horizon and TUPSS 2000. In the analysis following below, we will focus on the Blue Horizon Design:
About the UPS Store Franchise
The UPS Store started off as “Mailboxes Etc” back in 1980. It functioned as an alternative service to the U.S. post office. Following a rapid growth within that same year, its founders Gerald Aul, Pat Senn, and Robert Diaz soon after, sold their first franchise that later opened in San Diego, California. From there, the business continued to grow exponentially, until 21 years later they acquired UPS. Today, The UPS Store has over 5.000 stores across Canada, Puerto Rico, and the United States. Additionally, it is currently headquartered in San Diego, California, and is led by its President, Tim Davis. He has been serving the company since early 2002.
UPS Store Franchise Cost (Estimated Initial Investment)
| Type of Expenditure | Amount |
|---|---|
| Initial Franchisee Fe | 29,950 |
| Initial Marketing Plan | 7,500 |
| Design Fee | 2,100 |
| Site Survey | 1,500 |
| Center Development Fee | 5,000 |
| Initial Training Fees | 6,000 to 6,800 |
| Travel and Living Expenses While Training | 3,000 to 4,000 per person |
| Site Rent and Security Deposit | 4,500 to 18,000 |
| Leasehold Improvements, Construction Costs, Signage, Furniture and Decor Items | 104,741 to 265,838 (average of 186,046 as highest cost project included $119,863 vanilla shell preparation) |
| Computer Hardware/Installation/Freight | 8,460 to 11,163 |
| Optional Locker Fixture | 0 to 12,616 |
| Optional Locker Annual Subscription Agreement | 0 to 1,428 |
| Digital Media | 3,200 to 6,452 |
| Optional Keyless Entry | 0 to 845 |
| Annual Techonology Development and Support Fee | 2,304 |
| Software | 3,489 to 5,489 |
| Printer Lease | 1,248 to 3,096 |
| Other Equipment | 9,887 to 37,236 |
| Start-Up Supplies | 6,180 to 9,155 |
| Utility Deposits | 900 to 3,000 |
| Insurance | 1,000 to 5,000 |
| Subtotal | 200,959 to 438,472 |
| Additional Funds – 3 months | 40,000 to 70,000 |
| Total | 240,959 to 508,472 |
Ongoing Costs of Owning a UPS Store Franchise
Marketing Fee: UPS collects a marketing fee for public relations and other marketing activities, including research and development, testing, and pilot programs to promote the sale of existing or new products and services that could potentially produce revenues for Centers.
Hardware: You must purchase POS System hardware, back-office machine, and The UPS Store Business Station from UPS. PIN Pad devices for the Microsoft Dynamics 365 Modern POS (MPOS) must be obtained from our approved vendor. An additional customer-facing touch screen monitor for each POS System is required. You also must use at least 1 portable device/tablet for the Line Busting Application, Electronic Waiver for Notary Services, and other purposes. An Annual Technology Development and Support Fee must be paid each year, on a monthly basis, including upon the commencement of your Franchise Agreement.
Website: In order to promote and maintain a consistent brand image and message, UPS provides each Center with a Web site for the purpose of advertising its location, contact information, operating hours, and products and services.
Other fees like Hardware Maintenance and Computer Software will also increase the cost of running a franchise.
How Much Do UPS Store Franchise Owners Make?
| Year | Total # of Center | Average Adjusted Gross Sales (AGS) for All Centers | Median AGS for All Centers | Average AGS for Top 10% of Centers | Average AGS for Bottom 10% of Centers |
|---|---|---|---|---|---|
| 2021 | 4,678 | $677,538 | $643,447 | $1,155,920 | $343,036 |
| 2020 | 4,642 | $607,750 | $579,101 | $1,044,417 | $299,467 |
| 2019 | 4,561 | $521,316 | $494,759 | $916,057 | $252,427 |
It is hard to estimate how much money a UPS Store makes as it is fully dependent on location, demographics, etc. Some stores make less than a dollar per parcel while others might make in the range of $2-$3 per parcel. It is highly recommended that you reach out to other UPS Store owners in your area to figure out a profit margin for yourself.
That said, the UPS Store business is definitely expanding: AGS has been steadily increasing and grew at around 27% between 2019 and 2021.
Many factors affect the sales, costs and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other UPS Stores and the quality of management and service at your Franchised Store are also factors.
Is the UPS Store Franchise Profit Worth the Franchise Cost?
To assign a valuation multiple for UPS Store franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.
Under $1 Million Net Sales
- Estimated Selling Price = Net Sales – 0.44
When you go to sell a UPS Store based on the median multiple of .44 and net sales averaging between 2020 and 2021 of $611,274, it would sell for $268,960. This is significantly lower than the midpoint investment of $374,715.
However, once you start making over $5 million in sales, the multiplier increases to 0.79. As such, if you own 10 stores, making $6,112,740 in sales, your business would sell for $4,829,064 compared to an investment of lower than $3,747,150.
The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.
UPS Store (Franchisor) Income Statement Key Insights:
Income Statement
| Years Ended December 31 | |||
| 2021 | 2020 | 2019 | |
| Revenue | 97,287 | 84,628 | 74,094 |
| Operating Expenses: | |||
| Compensation and Benefits | 46,707 | 44,529 | 38,908 |
| Repairs and Amortization | 2,443 | 2,365 | 1,838 |
| Depreciation and Amortization | 2,953 | 2,698 | 2,360 |
| Purchased Transportation | 19,058 | 15,631 | 12,590 |
| Fuel | 3,847 | 2,582 | 3,289 |
| Other Occupancy | 1,698 | 1,539 | 1,392 |
| Other Expenses | 7,771 | 7,600 | 5,919 |
| Total Operating Expenses | 84,477 | 76,944 | 66,296 |
| Operating Profit | 12,810 | 7,684 | 7,798 |
| (Other Income and (Expenses) | |||
| Investment Income (Expense) and Other | 4,479 | (5,139) | (1,493) |
| Interest Expense | (694) | (701) | (653) |
| Total Other Income and (Expense) | 3,785 | (5,840) | (2,146) |
| Income Before Income Taxes | 16,595 | 1,844 | 5,652 |
| Income Tax Expense | 3,705 | 501 | 1,212 |
| Net Income | 12,890 | 1,343 | 4,440 |
UPS Stores are very profitable for UPS with a net income of $12.89 billion in 2021. This is 3 times the net income from 2019. With more people shifting to e-commerce retailers, UPS Stores are going to keep getting more and more business.
In the first quarter of 2022, UPS’ revenue increased 8% to a further $15.1 billion. This comes at a time when volume actually decreased. The increase in revenue, as such, might be a result of high inflation rather than an increase in the value of the service.
How Many UPS Store Units Have Opened and Closed?
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 4,773 | 4,866 | +93 |
| 2020 | 4,866 | 4,958 | +92 | |
| 2021 | 4,958 | 5,037 | +79 | |
| Company-Owned | 2019 | 0 | 0 | 0 |
| 2020 | 0 | 0 | 0 | |
| 2021 | 0 | 0 | 0 | |
| Total Outlets | 2019 | 4,773 | 4,866 | +93 |
| 2020 | 4,866 | 4,958 | +92 | |
| 2021 | 4,958 | 5,037 | +79 |
UPS is a goliath in the industry and as of the close of 2021, there were 5,037 franchised locations; the company does not operate self-owned stores. The franchised stores opened at an average rate of 88 stores between 2019 and 2021. These numbers might not seem impressive compared to smaller, newer franchises that might be opening more stores, but considering the established nature of UPS, they indicate further expansion.
Transfers
| Year | Number of Transfers | |
|---|---|---|
| Total | 2019 | 256 |
| 2020 | 225 | |
| 2021 | 356 |
Franchised UPS locations have a transfer rate of around 7% which 356 stores changing hands in 2021. That is a rate of one location every day.
Cost was definitely a factor when we bought into The UPS Store network. Coming from restaurants – restaurants are significantly more expensive in equipment, land and building. It allowed us to buy in without outside ownership and with less bank loans which is going to allow us to achieve complete ownership more quickly and allow us to expand more quickly.
Conclusion
Investing in a UPS Store franchise is an attractive opportunity, especially for individuals who carry a business background and have former work experience. The Mailing and Shipping Services industry is always a safe investment as there’s always room for expansion, especially seeing their ultimate goal is to merge and make cities, countries, and families closer to each other! Learn more about what UPS advertises the benefits as here.
While this may be the business for you, make sure also to check out other businesses analyzed on Vetted Biz like FedEx and Amazon DSP.
