Opening a UPS Store franchise can be a lucrative business opportunity for entrepreneurs looking to run their own small business. UPS Store locations provide mailbox services, shipping, packaging supplies, printing, and other business services to both consumers and small businesses in local communities. With over 4,700 locations across the United States, UPS Store is the largest franchise system of retail shipping, postal, print and business service centers in the world. But how profitable is owning and operating a UPS Store franchise? What are the costs, revenues, and profit margins for a typical UPS Store location? This article will provide an in-depth analysis of the profitability of UPS Store franchises.
How Much Does It Cost To Open a UPS Store?
The total investment to open a new UPS Store location ranges from $167,000 to $295,000 according to the UPS Store franchise website. This includes an initial franchise fee of $29,950. The majority of the total investment is allocated towards leasing, renovating and equipping a store location. Franchisees must have minimum liquid assets of $60,000 and a minimum net worth of $150,000.
Ongoing fees for UPS Store franchises include an ongoing royalty fee equal to 5% of weekly gross sales. Franchisees must also contribute 1% of weekly gross sales to a national advertising fund.
Some of the major costs involved in opening and operating a UPS Store include:
- Real estate costs – rent, security deposits, renovations, furniture
- Store equipment – counters, shelving, signage, technology, point-of-sale system
- Inventory – packaging materials, shipping supplies, office supplies
- Employees – wages, benefits, payroll taxes
- Insurance – liability, property, workers compensation
- Utilities – electricity, gas, water, telephone, internet
- Professional services – legal, accounting, marketing
- Licenses & permits – business licenses, sales tax permits
- Franchise fees – initial fee, ongoing royalties & ad fund contribution
These costs can vary considerably depending on factors like location, size of the store, number of employees, and services offered. But a UPS Store franchisee can expect to invest $200,000 to $300,000 or more to open a new location.
What is the Revenue & Profit Potential of a UPS Store?
The average UPS Store location generates between $200,000 to $700,000 in annual gross sales according to UPS Store franchise disclosure documents. However, revenue potential can vary greatly depending on the store’s location, population demographics, competition, and the owner’s business acumen. Some highly successful UPS Store locations bring in over $1 million in gross sales.
The profitability of an individual UPS Store franchise primarily depends on total revenue and the ability to manage costs. Industry estimates put the average store profit margin between 10% to 15% of gross sales. So for a location doing $300,000 in annual revenue, the estimated profit could be $30,000 to $45,000 before the owner’s salary and benefits. However, a top performing store with $700,000 in gross sales could potentially generate $70,000 to $105,000 in profit.
Some key factors impacting the profit margins of UPS Store locations include:
- Sales mix – higher margin services like printing tend to be more profitable than packaging services
- Cost control – ability to negotiate rents, manage inventory, and minimize operating expenses
- Store size – larger locations have more capacity for production equipment and customers
- Staff wages – ability to maintain lean staffing levels as a percentage of sales
- Owner involvement – hands-on owners can often operate more efficiently
Overall, the typical pre-tax profit for a UPS Store franchise is estimated to range between 10-20% of total sales. After paying the franchise royalties and advertising fees, high performing stores can potentially earn an annual profit of over $100,000 for owners.
What Services Do UPS Stores Provide?
UPS Store franchise locations provide consumers and small business customers with a wide range of products and services. This diversified mix of offerings helps drive revenues and profitability. Major service categories include:
- Packing & Shipping Services – Shipping domestically and internationally via major carriers like UPS, FedEx, USPS. Crating and freight services.
- Mail & Postal Services – Postal services, mailboxes, notary services. Digital printing of stamps and metering.
- Packing & Moving Supplies – Boxes, bubble wrap, tape, protective packaging materials.
- Print, Copy & Design Services – Printing, binding, finishing, banners, signs, business cards.
- Business Services – Mailbox rentals, shredding, faxing, scanning, office supplies.
- Technology Services – Computer rental stations, tech help, software demos.
This combination of service offerings helps drive customer traffic and recurring sales. Business services and printing tend to be among the most profitable areas with higher margins. Locations customize their mix to match the needs of the local market.
How Much Does a UPS Store Franchisee Earn?
The total compensation for a UPS Store franchise owner will depend on the profitability of their specific location. Since owners have flexibility in how much they want to pay themselves, earnings can vary greatly. Here are some perspectives on UPS Store franchisee earnings:
- According to Franchise Business Review, around 25% of UPS Store franchisees earn over $100,000 per year.
- On Glassdoor, UPS Store owners report average annual earnings ranging from $60,000 to $250,000.
- Top performing UPS Store franchisees can potentially earn $150,000 to $200,000 or more in total compensation.
- Owners with multiple locations may pay themselves over $250,000.
- Most franchisees pay themselves a mix of base salary and distributions from store profit.
In the early years of owning a new UPS Store location, franchisees may choose to pay themselves a smaller salary as they establish the business. Profit distributions and earnings potential tend to increase as sales grow and startup costs are paid off.
What Are the Ongoing Fees For a UPS Store Franchise?
UPS Store franchisees pay several ongoing fees after the store is opened and operating. These recurring franchise fees include:
- Royalty Fee – 5% of weekly gross sales paid to the franchisor.
- Advertising Fee – 1% of weekly gross sales to national marketing fund.
- Technology Fee – Ranges from $100 to $300 per week for software licenses.
- Center Support Fee – $750 charged quarterly by UPS corporate.
Based on estimated gross sales of $300,000 per year, a UPS Store franchisee would pay around $30,000 per year in royalty and advertising fees to UPS corporate. This equates to 10% of gross sales. The various recurring fees represent one of the major ongoing costs of owning a UPS Store franchise.
How Much Working Capital is Needed to Run a UPS Store?
Adequate working capital is essential for the smooth operation of a UPS Store franchise location. Franchisees should have access to at least 2-3 months of operating expenses to handle financial obligations like:
- Payroll
- Rent
- Inventory orders
- Insurance
- Debt payments
- Unforeseen expenses or slow sales periods
For a UPS Store location generating around $300,000 in annual sales, estimated working capital needs would be:
- Average monthly sales: $25,000
- Monthly expenses: $15,000
- Recommended working capital: $30,000 – $45,000
New franchisees should have adequate capital reserves so they are not cash-flow constrained in the early phases of the business. An existing franchise generating profits may require less working capital.
What is the Growth Potential of UPS Store Franchises?
UPS Store franchises have several avenues for growth to increase revenues and profitability over time including:
- Improving Same Store Sales – Increasing average transaction sizes and focusing on higher margin services.
- Expanding Services – Adding new offerings that match local demand.
- Increasing Foot Traffic – Driving additional walk-in customers through marketing and customer loyalty programs.
- Growing Business Accounts – Targeting B2B sales like office complexes and corporate clients.
- Acquiring Additional Locations – Multi-unit franchising by proven operators.
According to Franchise Business Review, around 35% of UPS Store franchisees own multiple locations. Purchasing existing stores or opening new locations provides unit growth opportunities to scale the business. UPS Store also continues to expand its nationwide footprint, growing its unit count 4% annually from 2020-2021 according to FBR.
What is the Failure Rate of UPS Store Franchises?
UPS Store has a proven franchise model with a relatively low failure rate compared to other franchises. Here are some key facts on UPS Store franchise survival and success rates:
- UPS Store has one of the Top 50 franchise systems by success rate ranked by the Franchise Business Review.
- 93% of UPS Store franchisees rate themselves as profitable per a FBR franchisee survey.
- Only 4% of UPS Stores closed in 2020 amidst the pandemic according to FBR data.
- Franchise Grade gives UPS Store an “A” for franchisee failure rates.
- UPS provides extensive initial and ongoing training plus field support.
The UPS brand, recurring revenues from business services, and diverse mix of profit centers contribute to the stability for UPS Store franchisees. Multi-unit franchisees also cite better economies of scale and profits compared to single location owners. However, some franchisees do struggle with profitability, often newer owners or those in highly competitive markets.
Conclusion
Opening a UPS Store franchise provides entrepreneurs an opportunity to run a local small business with the support of a major brand. While specific profits vary by location, the average UPS Store can generate $30,000 to $100,000 or more in annual earnings for franchisees. With over 4,700 locations across the U.S., UPS Store continues to be a highly rated franchise with proven systems to help owners succeed. For franchisees with strong business acumen and customer service skills, a UPS Store can be a rewarding and financially successful franchise investment.
