Franchising
What is meant by the term “unit economic model”? Explain why Unit Economics are the key to any franchise. What are the prerequisites to profitable unit economics?
In franchising, the unit is the franchise unit. For example, a franchisor might start a business in one location, succeed with it, and then franchise it in many locations. Each separate location is a unit. One of the challenges franchisors face it to develop a model that can produce profits similar to the original store as the concept is expanded to stores in other locations. The better the franchisor understands why his first store made money (i.e., its unit economics) the more likely he will be able to replicate the results in other locations.
What are the key profit-drivers in a franchise unit? Many are common to all franchises, although each type of franchise will have its own prioritized list. For example, a quick service restaurant needs a visible location convenient to a critical mass of customers. A fitness center benefits from a clean facility with modern equipment. Massage Envy (a popular franchise) needs expert massage therapists and welcoming customer service. Those are the key drivers. How do they translate into unit economics?
