Unit Economics

Unit economics in franchising refers to the revenue, costs, and profitability of a single franchise location. Strong unit economics mean that an individual location generates sufficient revenue to cover all operating costs (rent, labor, royalties, advertising, supplies) and still produce a meaningful profit for the franchisee. Key unit economics metrics include average unit volume (AUV), food/product cost percentage, labor cost percentage, rent-to-revenue ratio, and net operating income. Unit economics are the foundation of any franchise investment thesis: if individual locations are not profitable, the system cannot sustain itself regardless of how many units exist or how fast the brand is growing.