{"id":279813,"date":"2022-06-27T01:07:21","date_gmt":"2022-06-27T01:07:21","guid":{"rendered":"https:\/\/www.franconnect.com\/?p=279813"},"modified":"2024-12-11T13:56:50","modified_gmt":"2024-12-11T13:56:50","slug":"unit-level-economics-for-franchise-businesses","status":"publish","type":"post","link":"https:\/\/www.franconnect.com\/en\/unit-level-economics-for-franchise-businesses\/","title":{"rendered":"Unit Level Economics for Franchise Businesses"},"content":{"rendered":"

We have all heard that Unit Level Economics is important in franchising but going from understanding it in theory to transforming it into action is a big step.\u00a0 According to\u00a0QSR Magazine<\/a><\/span>, \u201cthe success or failure of a franchise concept can pivot off of how well unit economics are tracked, managed, and improved.\u201d After working with over 900 brands a common practice among them is working together with their franchisees to improve their unit-level economics: not only their top-level sales but also their bottom line. If you\u2019re not doing this today, you will have trouble selling franchises in the future.<\/span><\/p>\n

<\/p>\n

But what do we mean by unit-level economics? Unit-level economics is a means by which franchisors and franchisees identify, measure, track & manage the performance of their businesses at individual unit levels. Applying these principles effectively translates into managerial accounting skills as well as applying correlation analysis to determine key drivers\u2014often referred to as \u201cKPIs\u201d- that will allow them to achieve an acceptable level profitability for this particular unit. Identifying the key drivers that will determine whether or not you can achieve an acceptable level of profitability for a specific unit is important when seeing where operations can improve.<\/span><\/p>\n

Common business knowledge tells us that you can\u2019t improve what you don\u2019t measure. Thus, franchisors need access to data to help their franchisees continuously improve. What data? Sales, cost of goods sold, labor, customer satisfaction scores, field audit scores, number of proposals sent out last month, territory information, etc. The basic premise of continuous franchise improvement is that you can take a snapshot of these key performance metrics in one unit and compare them to not only past results but also the franchise average (or any comparable segment of stores within the franchise). These comparisons give you tremendous insights into the nitty-gritty of your business, allowing you to iteratively address your weaknesses and continuously improve.\u00a0In this blog, we are diving deeper into why unit-level economics are so important in franchising, and how you can put them in place in your organization.<\/span><\/p>\n

Why Unit Level Economics for Franchise Businesses<\/span><\/h2>\n

Having strong unit-level economics is the foundation upon which all business success sits. Even though most franchisors get royalties from revenue, not profit, having franchisees succeed in the long run creates genuine referrals and organic growth. Those who want sustained growth for both the franchisor and franchisee pay close attention. Strong unit-level economics can also help in Franchise Development as franchise candidates look for the following:<\/p>\n