Costs & finance

Unit economics

Unit economics is the profit-and-loss picture of a single franchise outlet, showing how much of its gross sales survives after cost of goods, wages, rent, franchise fees and other costs to become profit at that one location.

What it means

Unit economics looks at one outlet in isolation rather than the whole network. It traces how gross sales flow down through the major cost lines, cost of goods, labour, occupancy, royalties and marketing levy, and overheads, to arrive at the profit a typical unit makes.

It is the single most useful lens for judging whether a franchise is worth operating, because a strong brand with weak unit economics still leaves the franchisee with little. Franchise fees charged on gross sales are a fixed part of this equation and directly reduce what falls to the bottom line.

Franchisors are generally cautious about providing earnings figures, and the Franchising Code does not require them to give financial performance projections. Where they are not provided, franchisees build unit economics from disclosed costs, discussions with existing franchisees, and independent advice.

In practice

Build unit economics from realistic inputs and stress-test them. Model a lower-sales scenario, since fixed costs like rent and percentage-based franchise fees continue regardless of turnover and quickly erode thin margins.

Use existing franchisees as your best source. Speaking with several current operators about their real cost lines and take-home profit is often more informative than any projection, and is a core part of due diligence.

A real example

An outlet turning over $600,000 a year might spend 30% on cost of goods, 28% on wages, 10% on rent, and 9% on royalties and marketing levy combined, leaving roughly 23% before overheads and owner's drawings. After the remaining overheads, the franchisee might net around $70,000 to $90,000, which is the figure that really determines whether the outlet is worth running.

Unit economics — FAQs

What does unit economics tell me?

How profitable a single outlet is likely to be after all its costs, including franchise fees. It shows whether the business makes money at the location level, not just whether the brand is popular.

Will the franchisor give me the numbers?

Often only partly. The Franchising Code does not require earnings projections, so many franchisors decline to provide them. You typically build unit economics from disclosed costs and conversations with existing franchisees.

How do franchise fees affect unit economics?

Royalties and the marketing levy are usually charged on gross sales, so they reduce profit regardless of margin. They are a fixed part of the cost stack in any unit-economics model.

Why stress-test with lower sales?

Because fixed costs and percentage-based fees continue even when turnover falls, low-sales scenarios reveal how quickly a thin-margin outlet can move from profit to loss.

See the full franchise glossary, the Fee Index or our buyer guides.