Franchise Initial Investment: What 259 FDDs Say It Costs to Open, by Sector and Cost Category

What Item 7 measures and why the low and high estimates matter

Item 7 of a Franchise Disclosure Document (FDD) is the franchisor’s estimate of the total cash needed to open one unit. The FTC Franchise Rule requires it as a table titled YOUR ESTIMATED INITIAL INVESTMENT, with a total, and lets franchisors add tables for different site types or premises sizes (16 CFR 436.5(g)). The rule lists what belongs in it when applicable: the initial franchise fee, training, real property whether bought or leased, equipment, fixtures, construction and leasehold improvements, opening inventory, deposits, licenses and other prepaid expenses, plus a line called Additional funds for an initial period of operation.

When an amount is unknown, the franchisor gives a low-high range based on its current experience (16 CFR 436.5(g)(2)). The low and high totals are two scenarios, not a forecast with odds attached: the low end usually assumes a small site, landlord allowances or leased equipment, and the high end a larger site and full build-out. FTC staff describe Item 7 as the franchisee’s entire estimated initial investment, including payments to third parties such as rent, equipment and inventory (Franchise Rule Compliance Guide, 2008).

This study reads the Item 7 table of 259 FDDs issued from 2025-01-24 to 2026-08-18 and filed with the Minnesota Department of Commerce (Minnesota CARDS). It records all 4,002 line items (a median of 15 per FDD), maps each to a standard cost category and compares totals and cost structures across 14 sectors. It uses the same random, sector-capped sample as our franchise royalty rates study, so fees and investment can be read side by side. For a plain-language overview of costs and funding, see our franchise costs guide.

Franchise initial investment by sector: medians, quartiles and range

Totals vary by two orders of magnitude, so medians and quartiles describe the sample better than averages. Across all 259 FDDs the median low estimate was $265,372 and the median high estimate $573,000. The middle half of high estimates ran from $234,206 to $1,305,550.

Service businesses that run from an office, a home or a vehicle sit at the bottom: business services had medians of $58,855 to $125,627, senior and in-home care $101,800 to $182,425 and home services $140,475 to $257,325. Food and beverage medians were $484,050 to $959,374, fitness $319,510 to $746,562, entertainment and recreation $850,375 to $2.10 million, and lodging $9.16 million to $23.90 million.

54 FDDs (20.8%) had a low estimate under $100,000, but only 17 (6.6%) stayed under $100,000 at the high end. 81 (31.3%) reached $1 million or more at the high end. Our guide to franchises under $100k explains what the low end usually assumes. Whether a buyer can fund either end is a separate question, covered in our franchise affordability study.

Where the money goes: Item 7 cost structure by sector

Real estate and build-out is the largest part of the franchise initial investment in most sectors. Averaged across 259 FDDs it made up 33.4% of the high estimate, followed by equipment, signage, vehicles and technology at 23.9%, the initial fee at 15.5%, additional funds at 12%, training, opening and other costs at 11.4% and inventory at 3.9%. It was the single largest group in 131 FDDs, against 56 for equipment and 41 for the initial fee.

The split follows the business model. Site and equipment together averaged 86.6% of the high estimate in lodging, 80% in entertainment, 75.6% in food and beverage and 70.9% in fitness. In automotive, equipment alone averaged 50%. Senior and in-home care was the mirror image: site and equipment averaged 17.9%, while the initial fee averaged 32.8% and additional funds 25.9%. Retail had the largest inventory share, 15.1%.

Almost every table lists training (94.6% of FDDs), equipment (89.2%), grand opening marketing (86.9%) and insurance (86.1%). Vehicles appear in 25.9%, mostly mobile service brands. Combined rows (for example equipment and signs) are assigned to the first item named, which slightly understates the smaller categories.

How far apart the low and high estimates are

The high estimate is typically about double the low estimate, not several times it. The median ratio was 1.92x and the middle half of FDDs fell between 1.65x and 2.59x. 121 FDDs (46.7%) reached 2x and 50 (19.3%) reached 3x; 14.3% were under 1.5x.

The gap comes mostly from the site. On average, real estate and build-out explained 40% of the dollar gap between the two totals, equipment 25.3%, training, opening and other costs 13.6%, additional funds 12.6%, the initial fee 4.8% and inventory 3.7%. Fixed fees rarely move: in lodging, fitness, health and entertainment the initial fee explained none of the gap on average.

Automotive (2.83x) and retail (2.61x) had the widest median ratios; cleaning and restoration (1.68x) and education (1.7x) the narrowest. The largest ratios come from tables that span different set-ups in one range: OpenWorks (31.64x) runs from a home-based start to a leased office, Outset Collection by Hilton and Radisson Individuals span converting an existing hotel and building a new one, and ProColor Collision spans leasing and buying a facility.

Working capital: the additional funds line

Most franchisors budget working capital for the minimum period the FTC suggests. The rule says a reasonable initial period is at least three months or a reasonable period for the industry (16 CFR 436.5(g)(1)(iii)). 237 of 259 FDDs (91.5%) used exactly 3 months, 22 (8.5%) used 6 months or more and 2 used 12 months. Every FDD in the sample had an additional-funds line and stated its period.

The median additional-funds line was $25,000 to $50,000, or a median 9.2% of the high estimate. In dollars it was largest in lodging ($257,670 to $480,316) and smallest in business services ($5,000 to $11,000). As a share of the budget it was largest in senior and in-home care (26.8%), home services (18.5%) and cleaning (17.4%).

Two cautions. The line generally excludes the owner’s salary or draw, which FTC staff say belongs in a footnote (Compliance Guide, footnote 14), and three months is short for a business that takes longer to fill its book. A buyer who needs to live on savings while the unit ramps up needs money that Item 7 does not count.

Real estate and build-out: leased, home-based or built

Item 7 almost never includes buying property. 180 of 259 FDDs (69.5%) base the estimate on a leased site, 50 (19.3%) on a home-based or mobile start, 15 on building a property without the land (13 of them hotels) and 5 on space inside a host such as a travel center or store. Only 4 include buying land or a building in the total. 136 FDDs (52.5%) say so outright, stating that real estate purchase is excluded or that the estimate assumes a lease.

For leased sites the real estate line covers deposits and a few months of rent: the median real estate line was $5,973 to $22,500 among 226 FDDs with one. Build-out is where the money goes. Among 177 FDDs with a build-out line above $0, the median was $126,300 to $350,644. By sector the median build-out ran from $203,750 to $405,000 in food and beverage, $80,000 to $287,500 in fitness and $400,000 to $1.05 million in entertainment; lodging, where the line is hotel construction, was $7.32 million to $17.91 million.

Many low estimates assume a landlord tenant-improvement allowance or a second-generation space that needs little work, which is one reason the build-out line drives the spread. A buyer who plans to buy the building should add that cost, as the FTC’s consumer guide advises when it lists real estate and leasehold improvements among the costs to check (A Consumer’s Guide to Buying a Franchise).

The initial fee as a share of the franchise initial investment

The initial franchise fee is a small part of the total in most FDDs. Across 258 FDDs with a fee line, the median fee was $49,500 to $49,900, equal to a median 15.3% of the low estimate and 7.6% of the high estimate. In 153 FDDs (59.3%) it was under 10% of the high estimate.

The exception is the low-overhead service model. The median fee share of the high estimate was 32.8% in business services, 32% in senior and in-home care and 24.7% in home services, against 3.5% in food and beverage and 0.2% in lodging. The fee figures here are the Item 7 fee lines; fee levels, discounts and ongoing royalties are analyzed in our franchise royalty rates study.

The lowest and highest Item 7 totals in the sample

The lowest low estimates in the sample came from brands that need no premises. Poop 911 (pet waste removal, FDD issued 2025-05-21) disclosed $3,620 to $25,970; OpenWorks (cleaning and restoration) $4,250 to $134,480; Proforma (business services) $7,030 to $27,695; ITEX $9,700 to $37,700; and House of Colour $13,845 to $34,600. All five are coded as home-based or mobile starts, so their low ends carry no commercial rent or build-out.

The highest high estimates were full-service hotels: Marriott Franchised Brands (Marriott Hotels, JW Marriott) at $93.91 million to $168.94 million for a 300-room hotel, The James at $86.07 million to $158.22 million and Thompson Hotels at $70.60 million to $125.57 million, all new-build hotels of 200 to 300 rooms with no land cost in the total. These are the franchisors’ disclosed estimates, listed for reference and not as a ranking of the brands.

Construction and consumer prices since these FDDs were issued

Item 7 figures are written at the issue date and age from there. As context only, the BLS producer price index for goods used in commercial and healthcare construction (series WPUIP2312101) rose 11% from January 2025, the month of the earliest FDD in the sample, to August 2026, and 7.4% in the year to August 2026 (August 2026 is preliminary). Consumer prices (CPI-U) rose 5.4% and 3.4% over the same periods.

Input prices are not build-out quotes: labor, landlord allowances and design choices matter as much as material prices. The comparison only suggests that a 2025 build-out estimate is more likely to be low than high today. The next PPI release, for September 2026, is scheduled for 2026-10-15 (BLS release calendar).

Discussion: what the angle got right and wrong

The working hypothesis had three parts. Two held and one did not.

Held: the fee is small. The initial fee was a median 7.6% of the high estimate, and real estate, build-out and equipment carried most of the budget in food and beverage (75.6%), fitness (70.9%) and lodging (86.6%).

Partly held: service brands. Working capital does matter more in service models, reaching 25.9% of the high estimate in senior care and 20.4% in home services. But in those sectors the initial fee took a larger average share than working capital: 32.8% against 25.9% in senior care, 34.1% against 16.9% in business services and 30.6% against 20.4% in home services. For a low-overhead franchise, the fee is the largest cost group on average.

Did not hold: several times. The high estimate was a median 1.92x the low, and only 19.3% of FDDs reached 3x. Large multiples exist but are the exception, usually where the low end assumes no premises.

For buyers, the practical reading is that Item 7 is a site-and-equipment budget with a thin working-capital line. Comparing two brands’ totals says less than comparing what each assumes about the site, the months of additional funds and what the owner lives on. Ongoing costs after opening are covered in the royalty study, and loan terms in our SBA franchise loans research.

Limitations and where the data stops

• Estimates, not spending. Item 7 is the franchisor’s estimate. No public source records what franchisees actually spent, so nothing here measures accuracy.
• Minnesota registrations. The frame is FDDs filed in Minnesota, a registration state. Brands that do not sell there are missing.
• Sector caps. Each sector was capped at 18 brands (27 for food), so the all-sector median is a blend of sectors, not a market-weighted figure.
• One table per brand. 78 FDDs (30.1%) had more than one single-unit table; we used the standard or first format and, where an FDD offered both, the new-unit table rather than a conversion table.
• FDD arithmetic. In 14 FDDs the printed total differed from the sum of its rows by more than 1%. Totals are reported as printed; cost shares use the rows.
• Categories. Combined rows were assigned to their first-named category, and labels such as miscellaneous opening costs land in other.
• No earnings data. Item 7 is not a financial performance representation and says nothing about sales or profit (FTC Compliance Guide, footnote 13). For sales and profit disclosures see our Item 19 study.

Appendix: brand-level Item 7 dataset

The table lists every brand in the sample with its Item 7 totals as printed, the ratio of high to low, the main cost groups at the high end, the additional-funds period, the premises assumption and a link to the Minnesota document. The full line-item file, with every row’s label, category, low and high, is in the downloads. Brand figures are neutral records of what each FDD disclosed on its issue date.