IHOP Franchise in 2024: Costs, Fee & FDD
Thinking about investing in an IHOP franchise? Discover why the initial costs might be higher than expected and whether it’s worth the investment. Click to explore detailed financial insights and key considerations!
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IHOP, short for International House of Pancakes, was founded in 1958 by Al and Jerry Lapin in Los Angeles, California. The concept was simple: a family-friendly restaurant dedicated to serving pancakes and breakfast fare all day. IHOP quickly gained popularity, becoming a staple in American dining and growing into a major player in the restaurant industry. It’s known for its commitment to providing a welcoming atmosphere and a diverse menu that caters to various tastes and preferences.
IHOP’s core offerings revolve around its famous pancakes, which come in a variety of flavors and styles. Besides pancakes, the menu features a wide range of breakfast items, including omelets, waffles, and French toast. Lunch and dinner options are also available, with items like burgers, sandwiches, and salads. IHOP caters to a broad demographic, from families seeking a hearty breakfast to individuals craving comfort food. The chain emphasizes quality and consistency, aiming to be a go-to destination for breakfast enthusiasts and casual diners alike.
As of now, IHOP operates over 1,800 locations across the U.S. and several other countries. The franchise has a strong presence in Canada, Mexico, and the Middle East, among other regions. On any given day, IHOP serves millions of customers, reflecting its widespread appeal and successful brand recognition. Its substantial footprint underscores its position as a leading breakfast-focused chain in the restaurant industry.
IHOP offers a comprehensive support system to its franchisees, including initial training programs that cover everything from operations to customer service. The training includes both classroom instruction and hands-on experience in a live restaurant setting. Franchisees also benefit from ongoing support, marketing resources, and access to a network of experienced operators. IHOP’s dedication to franchisee success is evident in its robust support structure, helping new locations thrive and maintain the high standards associated with the brand.
IHOP Franchise Insights
- In 2023, IHOP achieved impressive gross sales of $1,975,292, reflecting a 4% growth from the previous year. This steady increase in sales highlights the brand’s strong market presence and ongoing appeal to customers.
- IHOP boasts a high level of brand loyalty, with many customers frequenting the restaurant multiple times a month for its consistent quality and comfort food.
- With a presence in over 10 countries, the brand showcases its global appeal and effective adaptation to diverse markets.
- Delivery and online ordering services have kept IHOP competitive in the evolving dining landscape, catering to the growing demand for convenience and accessibility in food services.
- IHOP is known for its innovative approach to menu development, frequently introducing seasonal and limited-time offerings to keep the dining experience fresh and exciting for customers. This strategy helps drive repeat business and keeps the brand top-of-mind.
IHOP Franchise Key Indicators
Growth YOY (%)
1%
vs industry 0%
Total investment
$1.77M - $4.38M
3-year Failure Rate
6%
vs industry 11%
Sales-to-Investment ratio
0.8:1
How Much Does It Cost to Open an IHOP Franchise?
Understanding the potential investment size and capital requirements is crucial when considering opening a IHOP franchise. These financial commitments, including initial franchise fees, equipment costs, and ongoing operational expenses, impact the feasibility and profitability of the venture. Thoroughly evaluating these factors ensures that potential franchisees are prepared for the financial responsibilities and can make informed decisions about their ability to sustain and grow the business, ultimately contributing to long-term success.
Min & Max Investment
Opening an IHOP franchise involves several key costs, which are outlined in Item 7 of the Franchise Disclosure Document (FDD). you can see a breakdown of the costs to open an IHOP below from the most recent Item 7 below:
| Type of Expenditure | Minimum Investment | Maximum Investment |
|---|---|---|
| Initial Franchise Fee | $50,000 | $50,000 |
| Real Estate | Varies | Varies |
| Construction | $910,000 | $2,800,000 |
| Major Equipment and Fixtures | $493,000 | $740,000 |
| Signage | $30,000 | $60,000 |
| Smallware Package/Opening Order | $15,000 | $30,000 |
| Inventory | $50,000 | $100,000 |
| Working Capital | $50,000 | $200,000 |
| Insurance | $35,000 | $100,000 |
| On-Location Assistance | $0 | $16,000 |
| Site Approval Costs | $0 | $50,000 |
| Impact Study | $4,000 | $6,000 |
| Opening Training Support Fee | $0 | $55,000 |
| POS Setup, Training and Support Fee | $3,500 | $7,980 |
| Tray POS Software Fees | $1,100 per year | $3,400 per year |
| Europay, Mastercard, and Visa (“EMV”) Point to Point Encryption (“P2P”) Services | $1,000 per year | $2,500 per year |
| Wi-Fi Services | $90 per month | $400 per month |
| Kitchen Display System | $15,000 | $30,000 |
| Server Tablets with Payment Device | $7,500 | $30,000 |
| On-Line Ordering | $65 per month | $200 per month |
| Mobile Device Management (“MDM”) Fee | $12 per year | $480 per year |
| Digital Products Service Fee | $0 per month | $350 per month |
| Implementation Fees | $250 | $1,500 |
| POS System Hardware | $20,000 | $30,000 |
| Wait Listing | $15 per month | $69 per month |
| Curb Side Pick Up – Fly Buy/I’ve Arrived | $20 per month | $30 per month |
| Customer Relationship Management (“CRM”) Fee | $0 per month | $150 permonth |
| Catering | $0 per month | $30 per month |
| Initial Additional Training Expenses | $4,000 per person | $7,000 per person |
| Supply Chain Co-op Stock Purchase | $0 | $100 |
| TRAY POS Training | $400 | $1500 |
| Terminal Device Antivirus | $240 | $600 |
| Additional Funds – 3 months | $16,500 | $85,250 |
| Miscellaneous | $5,000 | $26,000 |
| Total | $1,766,072 | $4,375,997 |
Item 7 in the Franchise Disclosure Document (FDD) is the “Estimated Initial Investment” section. It outlines the total costs a franchisee can expect to incur when starting a franchise, including the initial franchise fee, equipment, inventory, real estate, and other startup expenses. This section is crucial because it provides potential franchisees with a detailed understanding of the financial commitment required, helping them assess affordability and plan their investment strategy effectively.
Required Capital
To open an IHOP franchise, the required capital involves both the initial investment and specific financial requirements set by the franchisor. Here’s a closer look:
- Initial Investment The total estimated initial investment to open an IHOP franchise ranges from approximately $1.77 million to $4.38 million. This includes the franchise fee, real estate, construction, equipment, initial inventory, and additional funds for initial operating expenses.
- Liquid Assets Requirement IHOP typically requires franchisees to have a minimum of $250,000 in liquid assets. This ensures that the franchisee has sufficient funds to cover startup costs and any unforeseen expenses.
- Net Worth Requirement Franchisees are generally expected to have a net worth of at least $500,000. This net worth includes assets such as real estate and investments, minus any liabilities, to ensure financial stability and capability to support the franchise’s ongoing operations.
How Much Does an IHOP Franchise Owner Make?
Determining how much an IHOP franchise owner makes involves looking at gross sales to estimate total revenue, evaluating operational efficiency to understand profit margins, and factoring in franchisor fees, rent, utilities, and payroll. Good management of these elements plays a big role in a franchise’s profitability and overall financial success. By analyzing these financial aspects, you can get a clearer picture of potential net profits and, consequently, the owner’s salary. Understanding these details is crucial for accurate salary projections and effective financial planning.
IHOP Revenue & Gross Sales
In 2023 IHOP had a median gross sales of $1,975,292, which represented a 4% increase year over year. This positive revenue growth highlights the franchise’s strong market presence and ongoing appeal, indicating promising potential for franchisees.
Which key factors impact the average revenue performance of IHOP franchisees?
Several factors likely contributed to the growth in U.S. franchisee median gross sales revenue from 2023 to 2024. Enhanced marketing strategies and promotions, such as seasonal menu items and national campaigns, have successfully attracted more customers and boosted sales. Additionally, the brand’s focus on improving operational efficiency and streamlining service operations may have led to better customer experiences and higher sales volumes. The recovery of the dining industry from pandemic-related challenges and an increase in consumer confidence also played a role in driving revenue growth. Furthermore, expanding delivery and online ordering services likely contributed to increased accessibility and convenience for customers, further supporting the revenue performance.
IHOP Franchise Operational Costs
Opening an IHOP franchise involves several ongoing operational costs that you’ll need to budget for to ensure smooth and profitable operations. Here are the key expenses to consider:
- Food and Beverage Costs for purchasing ingredients and beverages to prepare menu items.
- Labor Salaries and wages for staff, including kitchen employees, servers, and management.
- Rent Monthly lease payments for the restaurant location.
- Utilities Expenses for electricity, water, gas, and other essential services.
- Maintenance Regular upkeep and repairs for equipment and the physical premises.
- Supplies Costs for non-food items like cleaning materials, packaging, and utensils.
- Marketing Budget for advertising, promotions, and local marketing initiatives.
- Royalty Fees Ongoing payments to the franchisor based on a percentage of gross sales.
- Insurance Coverage for property, liability, and workers’ compensation.
- Technology Costs related to POS systems, software, and other tech tools essential for operations.
Understanding and managing these costs effectively is crucial for maintaining profitability and ensuring the long-term success of your franchise.
IHOP Franchise Fees
When considering opening an IHOP franchise, it’s important to be aware of the various ongoing fees associated with operating the business. Here’s a breakdown of the key fees you should anticipate:
- Royalty Fee 4.5% of total Gross Sales, billed weekly and due 16 days after the invoice date. This fee is based on the franchise’s total gross sales.
- National Advertising Fee 3.5% of total Gross Sales, billed alongside the royalty fee. These funds are pooled with contributions from all U.S. franchisees to fund national marketing campaigns.
- Local Advertising Fee Currently, there is no required local advertising fee. However, if you choose to participate in cooperative advertising, this will be an optional expense.
- Cooperative Advertising Varies depending on participation. This optional fee is credited against your local advertising efforts and may involve a percentage of gross sales to fund media.
- Additional Fees additional fees include training, additional assistance, compliance, technology, and other fees.
Understanding these fees will help you manage your budget effectively and ensure you are prepared for the financial commitments associated with running an IHOP franchise.
IHOP Franchise Earnings
Based on the reported financial metrics, the median gross sales for an IHOP franchise in 2023 were approximately $1,975,292, reflecting a 4% increase from the previous year. For an owner-operator, we estimate earnings of about $197,529, or 10%, based on industry margins.
For semi-absentee operators, who may not be as involved in the day-to-day management, you can expect a lower estimated earnings due to the need to hire a manager. However, even with a less hands-on approach, franchisees can still achieve significant returns, although direct involvement should yield higher earnings.
How to Open an IHOP Franchise?
Becoming an IHOP franchisee involves several key steps to ensure you are well-prepared for a successful business venture. Here’s an outline of the process:
- Initial Inquiry Start by submitting an inquiry through the Vetted Biz website or directly contacting a franchise specialist. This allows you to express your interest and receive preliminary information about the franchise opportunity.
- Financial Review IHOP will conduct a thorough review of your financial background to ensure you meet the required capital, liquid assets, and net worth criteria. This step helps confirm your financial readiness for the investment.
- Interview and Approval Following the financial review, you will participate in an interview process with the franchise team. This stage is crucial for assessing your suitability and fit with the IHOP brand. Upon approval, you will receive the formal offer to become a franchisee.
- Training Once approved, you will undergo comprehensive training provided by IHOP. This includes operational, marketing, and management training to equip you with the knowledge and skills needed to run the franchise successfully.
- Location Development During the training phase, you will work on developing your restaurant location. This involves site selection, construction, and preparation to ensure your franchise meets IHOP’s standards and is ready for business.
- Opening Support As you approach the opening date, IHOP will provide support to ensure a smooth launch. This includes marketing assistance, final inspections, and operational support to help you start your business successfully.
Following these steps will guide you through the process of becoming an IHOP franchisee and setting up your new franchise for success.
Pros & Cons
Pros
Established Brand: IHOP is a well-recognized and popular brand with a strong reputation, which can attract a steady stream of customers.
Proven Business Model: The franchise benefits from a tested and successful business model, including operational procedures and marketing strategies.
Marketing and Advertising: National and cooperative advertising programs help drive brand visibility and customer traffic.
Menu Variety: A diverse menu that includes breakfast, lunch, and dinner options appeals to a broad customer base and can drive higher sales.
Cons
High Initial Investment: The initial costs, including franchise fees and setup expenses, can be substantial and may require significant financial resources.
Ongoing Fees: Regular royalty and advertising fees reduce your profit margins and can be a financial burden.
Competitive Market: The casual dining and breakfast segments are highly competitive, which can impact your franchise’s performance.
Operational Demands: Running an IHOP requires managing high staff levels, inventory, and maintaining service standards, which can be demanding.
