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Franchising is increasingly becoming an attractive business opportunity for entrepreneurs due to the many benefits it offers. Franchises eliminate the need to brand build from scratch, allowing entrepreneurs to take advantage of an established brand. A famous example of this is Gong Cha. With the market for bubble tea growing rapidly, Gong Cha has now registered their brand in more than 17 countries, and the total number of stores has reached over 1000. They have quickly become one of the world's largest bubble tea franchisers.
For those considering a Gong Cha franchise, it's important to understand the various operating expenses (running costs) that will be involved. These include rent for the franchise location, utilities, franchise fees, employees' salaries, raw ingredients, equipment maintenance, advertising, insurance, and storage costs.
In this blog post, we will take a deep look into these operating expenses and explore how they can affect the overall success of a Gong Cha franchise.
When it comes to starting a Gong Cha franchise, it is of utmost importance to understand the costs associated. This article outlines the following operating costs for a Gong Cha franchise:
- Rent for franchise locations
- Utilities for franchise locations
- Franchise employees' salaries
- Raw Ingredients
- Equipment maintenance
- Franchise fees
- Storage costs
Each of these expenses can have variable costs depending on the size and location of the franchise site.
Rent for franchise locations
When it comes to the cost of opening a Gong Cha franchise, the rent required for the franchise location is one of the most important considerations. Overall, the amount needed will vary depending on the location, but the latest statistics in US Dollars estimates that franchisees expect to pay anywhere between $1,787 – $9,500 per month in rent.
The primary factors that determine the cost of rent are the local market rates and size of the actual space desired. For example, a location in a high demand area such as New York City or San Francisco would require a higher rental rate than a lesser known city such as Bismarck, North Dakota. In addition, the total square footage desired will be an important factor. For instance, if a franchisee wishes to open a 24-hour Gong Cha location with a relatively large seating area, then double the rent of a standard store that is just equipped for basic operational hours.
Furniture and Fixtures
In addition to the rent for a franchise location, there are additional costs for furniture and fixtures as well. On average, this cost is estimated to be around $22,000, but this will also depend on the level of customisation desired by the franchisee. Items such as chairs, tables, staircases, kitchen utensils, ovens and other accessories will all require funding in order to be acquired.
When looking to acquire a franchise location, it is important to keep in mind that there may also be third-party fees which must be taken into account. For example, fees such as permits, licenses and legal fees must all be considered in order to accurately budget and prepare for the opening of a Gong Cha franchise.
The following list contains additional costs that may need to be taken into account when budgeting for a franchise:
- Security deposit
- Cleaning supplies
- Marketing and promotions
Overall, the cost of renting a franchise location will vary depending on several factors such as the location and size of the store. In addition, there are a variety of other expenses associated with the opening of a Gong Cha franchise which must also be accounted for such as furniture, fixtures, legal fees and inventory.
Gong Cha Franchise Financial Model
Utilities for Franchise Locations
Operating a franchise of any brand comes with a certain amount of overhead that must be taken into account. One of those overhead costs is utility expenses. Traditional utilities such as water, electricity, natural gas, and sewerage can vary greatly in price. Depending on the franchise location and the franchisee's individual agreements with utility providers, the cost associated with keeping the lights on and the water running can vary.
In 2019, the Federal Reserve's Survey of Consumer Finances reported an average of $246 spent per month on utilities. This can mean that utility expenses alone cost a franchisee between $3,000 - $3,500 annually. However, those costs can be far higher or lower depending on the specific franchised location.
Fortunately, there are certain factors that may lower the overall cost of utilities. These may include things like:
- Energy efficient appliances may reduce electricity and natural gas costs.
- Usage monitoring and conservation can help to reduce electricity and water costs.
- Agreements with energy providers to get the most favorable rates.
- Tax credits or other incentives for reducing energy consumption.
Franchisees should do their due diligence in assessing how much money they will have to spend in order to make their franchise business operational. Utilities often have an underestimated cumulative effect on franchise budgets, so understanding potential costs and determining potential savings is essential in creating a realistic budget.
Franchise Employees' Salaries
When evaluating the costs of operating a franchise, it is important to consider the salaries of franchise employees. Every franchise business needs to hire dedicated staff members to provide their services to customers, and this means paying wages to the franchise employees.
According to recent statistics, the average salary for a Gong Cha franchise employee in the United States is $9.25 per hour. However, the average salary for franchise employees varies depending on each franchise's location. For example, the average wage in certain states such as New York, California and Massachusetts is more than the country's average wage.
Aside from the average wage, the type of job that a franchise employee holds also influences the salary they can expect to receive. Generally, franchise employees in highly skilled positions are paid more than those who occupy entry level positions. Additionally, some franchises offer higher salaries than others, depending on the franchise's reputation, the franchise's operating costs, and the current state of the economy.
When it comes to looking at payroll costs, also consider the cost of healthcare benefits, vacation time, and other employee benefits. These benefits are important components of an employee's total compensation package, and they can add a significant amount of overhead to the operating costs of a franchise.
When evaluating the operating costs for a Gong Cha franchise, it is vital to consider the salaries of its employees. Not only does it affect the overall budget of the business, but it also impacts how well the franchise is perceived by customers and potential employees. By ensuring high salaries for their employees, Gong Cha franchises can ensure that their employees are highly motivated and invested in the business.
Gong Cha Franchise Financial Model
Running a Gong Cha franchise requires purchasing and maintaining a wide range of raw ingredients, such as teas and other add-ins. The cost of these raw ingredients typically makes up the majority of direct costs for a Gong Cha franchisee and can vary significantly depending on the number of menu items, ingredients and supplier. According to the Franchise Disclosure Documents for Gong Cha, the cost of these raw materials can range from $90,000 to $250,000 per year (USD). All these raw ingredients must be purchased from Gong Cha's authorized suppliers and suppliers must adhere to the organization's set quality standards.
Since Gong Cha places high importance on ensuring quality of their products and services, a great deal of emphasis is placed on the quality of the raw ingredients. As such, the exact recipe and ratios of the ingredients must be adhered to strictly and must only be sourced from approved suppliers. Moreover, ingredients must be thoroughly tested for food safety before being served to customers. Therefore, it is important for Gong Cha franchisees to ensure that their suppliers meet these standards in order to provide their customers with the best quality drinks.
In addition to purchasing and testing the raw ingredients, Gong Cha franchisees must also consider other costs associated with managing and ensuring quality control of the ingredients such as wages, safety and health training and equipment, insurance, and maintenance and repairs. To ensure that customers' expectations are met, and that the raw ingredients are of the highest quality, it is essential for Gong Cha franchisees to manage and maintain the ingredients, and ensure that all recommended procedures are followed.
When franchising a Gong Cha store, one of the main components to consider is the equipment maintenance costs. Like most food and beverage companies, there is the need for the proper upkeep of tools and machines. This can be a significant financial burden for a business if not managed correctly - especially for independent stores or franchises that have limited resources. By investing in quality equipment, a business can minimize expenses associated with repairs and preventive maintenance.
According to the Bureau of Labor Statistics, the average cost for equipment maintenance for food and beverage establishments in the United States is $42,300 USD per year. This figure includes the costs associated with regular maintenance, repairs and parts replacement. Equipment maintenance is a significant portion of the overhead costs of a business, making it important to budget accordingly and carefully analyze each investment.
When budgeting for equipment maintenance costs, franchisors should research the market to identify where they can get the best value for their money. Investing in quality machines can help businesses save money in the long run as they will be less prone to breakdowns and require fewer repairs over time. Additionally, it is important to inspect equipment regularly and to use preventive maintenance plans to ensure that machines are well maintained and do not need major repairs.
For those who manage the maintenance of the equipment in-house, the costs of labor, tools and parts should also be taken into account. Maintenance technicians should be well trained and able to provide quality service. Additionally, working with quality suppliers and purchasing spare parts in bulk can help reduce maintenance costs. Finally, it is important to select a professional maintenance provider that can offer a comprehensive range of services and the best results.
Equipment maintenance is an important element of the operating costs for a Gong Cha franchise. Investing in quality machines, working with experienced technicians and selecting a maintenance provider are all essential steps to reducing the cost associated with this expense.
Gong Cha Franchise Business Plan
Franchising is an attractive business opportunity for many, and Gong Cha is one of the fastest growing franchise chains in the United States. An entrepreneur considering opening a Gong Cha franchise needs to consider a number of costs associated with this venture, and one of the most important of these is the franchise fees.
The franchise fees for a Gong Cha franchise vary depending on the size and type of the franchise. However, prospective franchisees can expect to pay a franchise fee ranging from $30,000 to $50,000. In addition to this franchise fee, franchisees are responsible for any additional costs associated with setting up the franchise and meeting any other related requirements.
It is important to note that the initial franchise fee is only part of the total cost associated with running a Gong Cha franchise. Other expenses related to operating a Gong Cha franchise include the following:
- Operating costs – includes rent, utilities, staff salaries, and other related expenses.
- Inventory – includes supplies, food and beverage ingredients, and retail items.
- Marketing – covers product promotion and advertising costs.
- Insurance – covers property, liability, and employee-related insurance.
In addition to these expenses, franchisees are also responsible for the capital required to purchase or lease the equipment and to purchase other essential items such as furniture, signage, and uniforms. These expenses can quickly add up, so it's important to consider all of the potential costs associated with running a Gong Cha franchise before committing to the venture.
The Advertising costs of running a Gong Cha franchise depend on the size of the franchise, the amount of advertising being done, and the current cost of getting the word out in the market. According to a survey released in 2020, the average advertising costs for Gong Cha franchises amounted to $27,500.
These costs include direct mail campaigns, radio and television spots, newspaper or magazine ads, or even billboard advertisements. Each of these methods has different costs associated with them, but they all generally cost more than generic advertising methods. Additionally, special events, such as promotional parties or competitions, may also be sponsored to encourage more people to sample the product.
Additionally, digital marketing or social media campaigns are another method for boosting interest in a Gong Cha franchise. Typical costs for a successful campaign run anywhere from $2,500 to $20,000, depending on the type and complexity of the campaign.
Given the extensive advertising costs associated with running a Gong Cha franchise, budgeting for marketing and advertising is critical. Knowing the current costs associated with each method of advertising can help ensure that either the franchise's profits are not drained or the campaigns are as effective as possible.
Opening a business can be a costly endeavor, and owning a Gong Cha Franchise is no different. The insurance costs associated with a Gong Cha Franchise can be sizable, and they are just one of the many business operating costs a franchisor must consider. American businesses spent and estimated $785 billion on insurance costs in 2018, which was an increase of 3.2% since 2017
According to Entrepreneur, for a Gong Cha Franchise, one of the most significant investments in terms of insurance is Professional Liability Insurance. Professional Liability Insurance covers the franchisor from clients suing due to negligence in contract performance/agreements, negligent misrepresentation/misinformation, or misappropriation of intellectual property.
In addition to Professional Liability Insurance, a franchisor must consider covering the business with both Property Protection and Casualty Insurance Policy. The Property Protection Insurance Policy typically covers physical goods and the building itself, while Casualty Insurance Policy covers a variety of business liabilities that are not necessarily covered by the other policies.
It is advisable to look into the average insurance costs for a Gong Cha Franchise, as these costs can vary depending on the franchisor’s region and individual circumstances. Generally speaking, in 2019, Professional Liability Insurance was estimated to cost a franchisor around $7,000 per year; Property Protection Insurance was estimated to cost $2,500 per year; and Casualty Insurance was estimated to cost about $4,500 per year. All of these costs should be carefully considered before opening any business.
The cost of storing goods and merchandise for the Gong Cha Franchise is a necessary overhead expense. Depending upon the size of the location, storage costs can vary from location to location. According to Statista, in 2019, the average cost for operating storage space for a Gong Cha Franchise in the United States was a sizeable $4.69 per square foot.
Of course, the needs of each individual Gong Cha will vary and other costs such as property taxes, operating costs, repair and maintenance may be included as part of the overall storage costs. Storage costs may also increase depending on the necessary requirements of the location. For example, if additional cooling systems are needed, these costs would be added to the storage costs. In addition, the potential need for additional security measures to protect merchandise and the like.
When it comes to storage, there are several factors that should be taken into consideration. First, a Gong Cha must determine their total available storage space. Many locations will utilize their existing storage space for their Gong Cha operations. However, if a larger location is needed, additional costs may be incurred for leasing more storage space. Secondly, the type of items that will be stored must be taken into account in order to determine the necessary storage requirements. Small items such as paper goods, beverage supplies, and napkins may require smaller storage space while larger merchandise such as furniture and promotional materials will require larger storage space. Finally, if a Gong Cha expands their offerings, additional storage costs may need to be considered.
In addition to actual storage costs, Gong Cha owners will also want to consider any insurance needs that may be necessary while goods are in storage. A comprehensive insurance plan can help to protect the goods in storage and also provide peace of mind. Overall, storage costs are a necessary overhead expense for every Gong Cha Franchise and should be taken into consideration when budgeting for the operation.
A Gong Cha franchise can be a great way to make use of an established brand and tap into the world of bubble tea. However, it’s important to be aware of the various operating costs that will be involved. These include rent for the franchise location, utilities, franchise fees, employees' salaries, raw ingredients, equipment maintenance, advertising, insurance, and storage costs.
Anyone interested in opening a Gong Cha franchise should be aware of these costs and develop strategies to ensure that the overall success of their business is not hindered. With careful planning, a Gong Cha franchise can be a great way to make a sustainable income and contribute to the growth of bubble tea.
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