While IHOP (International House of Pancakes) has been around for 65 years is the breakfast chain still a cornerstone of the American franchise model or beginning to show its age?
How much will it cost to open an IHOP? You can expect the all-in cost for a single location to range from $1,151,056 to $6,037,017 per unit depending on the price of real estate in your market. Due to the significant cost it takes most franchisees 10 years or longer to get back their initial investment.
Still interested in this breakfast concept? Here, I offer an updated franchise guide and cost assessment to help you make informed decisions before investing. I cover everything from initial costs and fees to average annual revenue and how long it takes IHOP owners to pay back their initial investment (quick tip: it’s much longer than you think). First, let’s look at the total IHOP franchise costs and owner profits as of 2023. Take our 7-minute franchise quiz to find out if this breakfast chain is the right opportunity for you.
- An Overview of iHop as a Franchise
- Financial Requirements and Fees
- How Long Does It Take to Recoup Your Investment on Average?
- What Are the Complaints about the IHOP Franchise?
An Overview of IHOP as a Franchise
Founded in 1958, IHOP will celebrate 65 years of business in 2023. While this sets the franchise apart as a long-running and well-established business, as I’ll get into that doesn’t necessarily mean franchisees are guaranteed success.
IHOP is now owned and operated by Dine Brands Global, INC., the owner of the Applebees restaurant franchise. Although IHOP was Dine Brands Global’s flagship franchise, Applebees has grown alongside the restaurant in recent years and has as many locations as IHOP, if not more.
While IHOP started as an American breakfast food location similar to an old-fashioned diner, it has branched out in recent years to include all kinds of breakfast, lunch, and dinner foods, as well as deserts, milkshakes, and more.
While IHOP may be associated with American breakfast food, this franchise exists worldwide, with more than 1,800s units across several countries and continents. While my analysis primarily focuses on the cost of starting a United States IHOP franchise, I’ll also note some international fee differences.
IHOP Franchise Facts
|Total Units||Over 1,800|
|Industry||Food and beverage|
While IHOP was primarily a breakfast food location, the business model shifted to provide traditional American diner food, including burgers and fries, in recent years. Though most people associate the restaurant with pancakes, the move to a more varied menu has been met with decent approval, though pancakes remain a cornerstone of this restaurant.
It is worth noting this international house of pancakes is genuinely international, although 1,679 of these stores are located within the United States. In fact, California is the state with the most IHOP restaurants as of with 223 locations.
Financial Requirements and Fees
In this section, I look at the financial requirements for starting an IHOP restaurant and the total costs for creating and maintaining the business. Remember that while our information is as recent as possible, only make a franchise investment after receiving an up-to-date franchise agreement from the franchiser as their terms are constantly updating.
While the primary financial requirements to consider before starting a franchise are the initial base investment and franchise fee, I share other expenses that are worthy of consideration, such as the cost of outfitting a restaurant and hidden franchise fees you may not initially consider.
|Net Worth||$1.5 million|
|Total Investment||$1,151,056 to $6,037,017|
|Franchise Fee||$50,000 for a single unit, $40,000 for each additional unit|
|Location Fee||$15,000 that goes toward the franchise fee (single restaurant)|
|Development Fee||$20,000 that goes toward the franchise fee (multiple units)|
|Franchise Term||20 years|
It’s worth noting that, unlike some other restaurant franchises, IHOP includes real estate and building fees in their estimated investment assessment, meaning that potential investors should take the inflated number above with a grain of salt compared to other franchises. However, as IHOP is a full restaurant location, remember that things like furnishings, advertising, and more should be included when analyzing total startup cost.
Another item worth noting is the net worth of $1.5 million and the liquid capital requirements. While the net worth is partially understandable due to the overall investment of starting an IHOP, the liquid cash requirements are higher than some of the other franchises we’ve analyzed, making it a significant barrier to entry. With a liquid asset this high, the odds of a franchisee meeting the requirements without additional loans is unlikely unless you have a seriously impressive net worth and liquid capital.
|National Advertising Fund||3.5%|
|Estimated Real Estate Costs||$300,000 to $2,500,000 (assuming between 4,000 to 6,000 square feet for the restaurant and up to 60,000 square feet total for the lot)|
|Building Improvements (Construction)||$450,000 to $2,300,000|
|Major Equipment/Fixtures (Construction)||$150,000 to $400,000|
|Signage (Construction)||$25,000 to $100,000|
|Smallwares (Construction)||$14,000 to $34,000|
|Total Estimated Construction Costs||$639,000 to $2,834,000|
|Inventory||$10,000 to $30,000|
|Insurance||$30,000 to $75,000|
|Site Approval||Up to $50,000|
|On-Location Assistance||$0 to $16,000|
|Impact Study||$4,000 to $6,000|
|Opening Training Support Fee||$0 to $16,000|
|POS (Point of Sale) System||$20,000 to $30,000|
|POS Setup, Training, and Support Fee||$3,500 to $7,980 (virtual support for a reduced price of $2,500, available after 4th restaurant opened)|
|Transaction Services/Oracle Hospitality eCommerce Integration Cloud Services (“OHEICS”)||$300 to $500 annually|
|P2P (Point2Point) Encryption Services||$1,000 to $2,500|
|Wi-Fi Services||$90 to $400 per month|
|Kitchen Display System (KDS)||$15,000 to $20,000|
|Server Tablets (Currently Optional)||$0 to $20,000|
|On-Line Ordering Fee||$91 per month|
|Gateway Processing Fee||$66 per month|
|Digital Products Service Fee||$0 to $350 per month|
|Software/Hardware Implementation Fees||$250 to $500|
|“No Wait” Waitlist Service (Optional)||$0 to $69 per month|
|Customer Relationship Management (CRM)||$0 to $150 per month|
|Catering (Optional)||$0 to $30 per month|
|Initial Additional Training Expenses||$4,000 to $7,000 per person|
|Additional Funds – 3 Months||$16,500 to $85,250|
|Miscellaneous||$5,000 to $26,000|
If you have done franchise research with us in the past, you won’t be surprised to hear this is one of the longest franchise additional fee sections to date. However, iHOP is surprisingly transparent with its total fees and financial requirements, meaning that a potential franchisee has a good idea of what they’re getting into before investing.
Remember that these additional fees are included in the total initial investment of between $1,151,056 to $6,037,017, as listed above. The higher end of this scale includes things like real estate costs and furnishing the building from the ground up, meaning that a franchisee that already owns property or has a furnished industrial kitchen may have lower costs than one starting from the ground up.
That said, there are many fees to consider in this list. Even with the inclusion of some optional items (which may be required by the franchiser at a later date), the additional training expense of up to $7,000 per person is a steep requirement, and that’s just one item on a long list. So it’s no surprise that professional estimates say that it can take up to 13 years to make back your original investment in an iHOP franchise.
How Much Profit Do IHOP Franchisees Make Per Year?
Sources estimate that IHOP made close to $3.12 billion in systemwide sales in 2021, a lower number than in previous years, given the impact of the COVID-19 pandemic. Nevertheless, compared to sales in both 2019 and 2020, this is a significant increase. However, these years cannot be considered standard until the end of the 2022 fiscal calendar.
Average Sales / Revenue per Year
|Systemwide Annual Sales||Estimated $3.12 billion in 2021|
|Average Annual Sales per Unit||$1.8 million|
|Average Franchisee Profit||$250,000 to $300,000 (at a 15% profit margin)|
An IHOP franchise’s average sales per unit come in at around $1.8 million per location. Of course, this includes well-established sites past the opening phase and locations that make significantly more or less than the average. An IHOP franchise’s average sales per unit come in at around $1.8 million per location. Of course, this includes locations that are well established, past the opening phase, and locations that make significantly more or less than the average.
Suppose you estimate around 85% of total profits going back to sustaining the business, especially considering the royalty fees associated with IHOP branding. In that case, the average IHOP franchise owner can anticipate between $250,000 to $300,000 in profits per year.
While overall, this does not sound like a bad turnaround, keep in mind at the lower end of this pay scale, it can take over 10 to 13 years for an IHOP owner to make back their original investment, barring business failure, relocation costs, or other unexpected fees and expenses. With such a heft initial investment and a franchise contract duration of 20 years, starting an IHOP is not an investment with a quick turnaround time.
What Is the Average Salary of an iHop Owner?
As mentioned above, the average salary of an iHOP owner is between $250,000 and $300,000. Keep in mind this is an estimated salary assuming a 15% return on investment and including how long the restaurant has been in operation. Compared to the total investment for franchising an IHOP, this is a lower salary than expected and calls into question the profit margins for IHOP franchisees across the board.
However, it is worth noting that IHOP is upfront about total costs for franchisees, including property costs and construction fees, in their calculations. While the average price of starting a restaurant in the food and beverage industry is much lower than an IHOP, these fail to include total costs and include smaller restaurants and bakeries with less upkeep and a smaller physical footprint.
Who Owns the Most iHop Franchises?
TravelCenters of America Inc. signed the largest franchise deal in the history of IHOP in 2019. This franchise deal set the construction of 94 IHOP locations in motion and stands out as the biggest deal in the company’s almost 65 years of business.
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While TravelCenter of America is far from the average franchisee, this deal makes them one of the largest single owners of IHOP franchises. However, owning and operating several IHOP locations is far from abnormal, with several prominent investors showcased by the company yearly.
Are there any other Prominent Investors on this Franchise List?
Other prominent large-scale investors in the IHOP franchise include Sun Holdings, Inc., which took over operations of 41 already constructed IHOP locations in 2020. Sun Holdings, Inc. is another large-scale company with over 1,000 franchise locations under its management as of 2020.
Individual IHOP franchise owners are far from abnormal, with this franchise boasting a local feel for their restaurants. While we can’t round up the owners of all 1,600+ franchises under the IHOP banner, one owner is worth mentioning. Adenah Bayoh became the youngest IHOP franchise owner in history at 27. Born in Foya, Liberia, Bayoh was a financial innovator from a young age, selling bread at just six years old. Her family immigrated to the United States when she was 13 years old.
Bayoh initially worked in banking, later transitioning her investments to multifamily homes. Her IHOP portfolio has continued to grow alongside her real estate investments, with four restaurants under her management, including one of the most profitable locations in the Northeastern United States.
How Long Does It Take to Recoup Your Investment on Average?
As we’ve mentioned above, at an average of $250,000 to $300,000 in franchisee total profits per year after reinvesting in business necessities, it can take 10 to 13 years to recoup your original investment.
This assumes no financial hurdles, relative business success, or location growth over time. For example, one report estimates that selling an IHOP location earns only a little over $1 million in 2021 real estate costs, meaning that selling the location makes much less than your initial investment of up to $6 million or more.
What Are the Complaints about the IHOP Franchise?
The most significant complaint about the IHOP franchise is the overwhelming cost of the initial investment. While each IHOP location garners its customer complaints, from a franchise perspective, the initial cost of starting an IHOP compared to the limited profits is astronomical.
Attempting to recoup your investment as a single-location owner is a long-term investment, making it difficult for individual investors to break into the franchise. On top of this, while owning several restaurants may increase the odds of making back your investment slightly, the overwhelming cost paired with how many IHOP locations already exist makes investing in multiple locations a financial risk at best.
Advantages of iHop
Here are some of the advantages of investing in the IHOP franchise:
- Well-established franchise with almost 65 years of operation
- Upfront about overall costs and fees
- International locations
- 1,600+ comparable restaurant locations
Challenges of iHop
Here are some of the challenges associated with starting an IHOP franchise location:
- High initial costs and fees
- High individual investment
- Long operation to return on investment (10 to 13 years at best)
- Many restaurant locations, meaning competition is high
- Selling a franchise location does not make back the bare minimum required to open a franchise location
Is IHOP Right for You?
IHOP is an expensive franchise with high upfront costs and a long-term turnaround. Another franchise would better serve investors with enough capital to invest in an IHOP to look into other franchise opportunities like those listed on our site before committing to the steep price of owning and operating an IHOP location. Of course, check with a financial advisor before making any financial decisions or committing to a franchise.