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Unit Economics for Multi-Unit Franchises

By Jae Pi .

Unit economics is an important measurement for all business owners, including multi-unit franchisees who are often very good operators and are skilled at knowing how to open multiple locations quickly and efficiently. Tracking and measuring ongoing unit profitability is an essential part of running a successful multi-unit franchise. Unit economics are revenues and costs associated with a business model in relation to an individual unit. In the case of multi-unit operators, their unit economics may be the amount of revenues generated from each store or location or the amount of revenues generated from each product line. These units are analyzed to determine how much profit or loss they individually produce.

Unit economics are an integral part of planning for a company’s future. Understanding this concept helps franchisees accurately forecast the net profit and cash flow to determine a realistic picture of the timeline necessary to achieve certain goals. Within the same franchise concept, each outlet will generate different levels of revenue and overall profitability. There are key benchmarks that a franchisor can track and push back to the system so franchisees can monitor their performance against other franchisees in the system.

"Tracking and measuring ongoing unit profitability is an essential part of running a successful multi-unit franchise."

As an example for a quick service franchise, the average cost per ticket or average headcount during peak times could be an important key performance indicator. Multi-unit franchisees can compare those results to their own and see where improvements can be made. Many times, companies think the only way to make more money is to raise prices. While this could be true, sometimes managing overall costs and eliminating excess can help you achieve success more quickly. When your revenues increase you will drop more profit to the bottom line. Franchisees could also incentivize their employees to monitor certain costs and up-sell products that have higher margins.

Unit economics is utilized to optimize a product line and to determine whether the product is overpriced or underpriced.

Subscribers can also view the full article from Pillars of Franchising here:

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