Perhaps one of the most challenging things for a prospective new franchise owner to do is to select the right franchised concept to buy into. It can be challenging because there are about 3,800 franchise brands to choose from. One of the most important selection criteria to use is unit economics.
What Are Unit Economics?
Unit economics refers to the measures of a franchisee’s ability to execute the operating system of a business and achieve acceptable revenues and returns on his/her investment. Good unit economics means optimizing costs and generating more revenue.
The Essential Elements of Franchise Success
There are five essential elements of success for a franchise owner:
- Unit economics.
- Well-defined and repeatable operations.
- A dependable and scalable supply chain.
- Having a strong brand reputation with a passionate customer base.
- Developing a strong leadership team.
5 Ways to Strengthen Unit Economics
Using the restaurant category as an example, consider these 5 ways to strengthen unit economics. Similar actions can be used in other franchised businesses.
First, consider menu engineering. That means looking at the menu and eliminating items that are too expensive in terms of food costs, especially poor-selling items. Look at ways to modify recipes to utilize less-expensive ingredients. Create new menu items that have more advantageous food costs. Add high-margin items to the menu like drinks, appetizers, and sides. Eliminate poor-selling items that are labor-intensive. Consider selective price increases to improve profit margins.
Second, optimize operating hours, either shrinking or extending hours to match the best traffic patterns.
Third, utilize technology to improve operating efficiency and reduce costs.
Fourth, find ways to reduce labor costs.
Fifth, examine all ancillary costs such as rent, cleaning, and maintenance to see where reductions can be made.
Seek Expert Financing Assistance
Contact Crimson Stone Capital Solutions based in Los Angeles, CA for a wide variety of business loans to power your business forward. We are focused on finding the right loan that will help you achieve your goals.