The Real Way McDonald’s Makes Their Money—It’s Not Their Food

This fast-food giant may serve billions and billions of customers, but the bulk of their profit isn’t made from food sales.

McDonald’s sells a lot of food. Like, a lot of food. We’re talking enough food to serve more than 70 million people every day, with more than 75 burgers sold every second. (And did you know McDonald’s has birthday cakes?)

That shouldn’t be too surprising, considering McDonald’s is one of the largest fast-food chains in the world. But their menu actually isn’t what generates the company’s multi-billion dollar profits. The real best-seller? Real estate.

There are more than 36,000 McDonald’s locations worldwide, but only about 5 percent of them are company-owned. The rest are franchised out, meaning they’re run by individuals who McDonald’s has contracted to operate them. In those situations, the company only spends money on the real estate of that location. The franchise is responsible for all the costs of running the restaurant while also paying McDonald’s for rent (which adds up to an average of 10.7 percent of their sales), a $45,000 franchise fee and a monthly service fee equal to 4 percent of gross sales, Business Insider reports. With multiple means of collecting revenue at relatively minimal costs, it’s no wonder McDonald’s relies so heavily on franchises. In case you were curious, here are 17 things McDonald’s employees won’t tell you.

“We are not basically in the food business,” former McDonald’s CFO Harry J. Sonneborn reportedly told investors. “We are in the real estate business. The only reason we sell 15 cent hamburgers is because they are the greatest producer of revenue from which our tenants can pay us rent.”

Being able to hand off the costs of running the restaurants is a primary key to McDonald’s success. According to Wall Street Survivor, in 2014, the company made $27.4 billion in revenue, with $9.2 billion coming from franchised locations and $18.2 from company-owned locations. But after you factor in the total costs of running those locations, McDonald’s kept only 16 percent of the revenue from locations it owned directly compared to the 82 percent of the franchise-generated revenue.

So while you may spend money at McDonald’s on a Big Mac and fries, McDonald’s is spending money on prime real estate—and they’re lovin’ it. Check out the state with the largest number of McDonald’s locations.

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Originally Published on Reader's Digest