model-unit-economics

name

model-unit-economics

description

Build a royalty-loaded unit-economics model for a franchise unit: revenue with royalty + ad-fund + fees taken off the top, then COGS / labor / occupancy / other opex to a unit profit and a break-even, plus total investment and months-to-ramp — so a buy/expand decision rests on bottom-up numbers, not the brand's Item-19 headline. Reach for it before any franchise buy or expansion. Used by `franchise-operations-strategist` (primary). Not investment advice.

Skill: model-unit-economics

Invoked by: franchise-operations-strategist (primary). Deep model mechanics/projections route to finance.

When to invoke: evaluating a franchise buy, an expansion unit, or any "will this pencil?" question.

Output: a royalty-loaded unit P&L + break-even + total investment + months-to-ramp. Fee figures carry a retrieval date + [verify-at-use]; this is business decision-support, not investment advice.

Procedure

1. Build revenue bottom-up. Don't start from the brand's average unit volume (AUV). Estimate from your market/site: traffic × ticket, or capacity × utilization. Cross-check against Item 19 — but treat Item 19 as a sanity band, not the input.
2. Take the franchise fees off the top. Royalty (% of gross), ad/brand fund (% of gross), tech/other recurring fees — subtract from revenue first. This is the step operators skip; it's where a unit that looked profitable turns marginal. Verify the exact percentages from the current FDD (Item 5/6) [verify-at-use].
3. Layer the operating costs. COGS %, labor % (prime cost = the two together), occupancy/rent, utilities, insurance, local marketing, other opex — to a unit-level operating profit.
4. Compute break-even and contribution. Fixed cost ÷ contribution margin = break-even revenue; compare to your bottom-up revenue for headroom.
5. Total the investment and the ramp. Franchise fee + build-out + equipment + initial inventory + working capital to cover the ramp to break-even. Undercapitalization during ramp is the #1 unit killer — model the months of negative cash.
6. Stress it. Sensitivity on revenue (−15/−25%), labor (+3-6 pts), and rent. If it only works at the top of the range, it's a no.

Worked example

QSR unit, bottom-up revenue $850k.

• Fees off the top → 6% royalty + 2% ad fund = $68k → net $782k [verify-at-use].
• COGS 30% ($255k) + labor 28% ($238k) = prime 58%; occupancy $90k; other opex $95k → unit profit ≈ $104k.
• Investment → $45k franchise fee + $400k build-out + $90k working capital ≈ $535k; ramp ≈ 5 months negative.
• Stress → at −20% revenue the unit is near break-even → thin; decision hinges on site confidence.

Guardrails

• Never underwrite on the brand's headline AUV — model bottom-up, use Item 19 as a band.
• Fees come off revenue before the P&L operators usually look at — the most common modeling error.
• Working capital for the ramp is part of the investment — undercapitalization kills otherwise-good units.
• Exact fee percentages are per-FDD-edition — verify from the current document.