How Much Is One New Franchise Unit Worth?

A term you hear a lot in the franchise development world is unit economics.

Put simply, it’s the ability of a franchisee to execute a concept’s business model and receive just revenue and returns.

Large franchise brands with thousands or even tens of thousands of locations have strong unit economics to achieve that kind of growth. It’s the result of a strategic, long term development process. Even a regular old hamburger joint that started with a single store back in the 1940’s can have that scale of success, with the right team and plan behind it.

Related to unit economics, one question our franchisor clients often ask us is:

How much is one new franchise unit worth?

It's a complex equation. Especially if you’re still practicing the old model of focusing on initial franchise fees and creating a smash and grab goal. Franchise salespeople may need numbers on the board, but the company executives need to be thinking bigger and longer term.

The here and now value is important, yes, but what about three to ten years from now?

We’ve put together a handy tool called the Franchise Unit Value Calculator, and it’s perfect for helping you predict the expected new deal value over the average deal term including royalty collections and other metrics.

To calculate this data driven, long term thinking number, we recommend you start with average values for your franchise, assuming a standard single unit. Most can be found in your FDD (Items 5, 6, 17, and 19).

In cases where certain fees vary within your system, you’ll want to pick one common case as an example to use throughout, for consistency. Also, you may wish to run that calculation at least two or three times, to determine a range of values for several common cases.

This is the appropriate next step with your franchise development team to figure out how much it costs to sell one franchise unit. We recommend you use this calculator at your next planning meeting. Make sure everyone on your team practices plugging in your brand's financials and other relevant metrics to calculate the sales and marketing most appropriate for growth.

You may not have 38,000 stores like McDonalds does, but by using a strategic, long term development process, your unit economics can grow exponentially.