Franchise Occupancy Costs

Franchise occupancy costs encompass all expenses related to the physical location of a franchise business, including rent or mortgage payments, common area maintenance (CAM) charges, property taxes, property insurance, and utilities. For most brick-and-mortar franchise concepts, occupancy costs represent 8-15% of gross revenue and are the second-largest expense category after labor. Disclosed as part of Item 7 (initial investment) and critical to Item 19 profitability analysis, occupancy costs vary dramatically by location, market, and concept type. Franchisees in high-traffic retail locations typically pay premium rents but benefit from greater foot traffic, while those in secondary locations save on rent but may generate lower revenue. Occupancy cost ratios above 15% of revenue are generally considered unsustainable.