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When potential franchisees evaluate franchise opportunities, one of the most crucial metrics for comparing options is the economy of units. Unit economics is a means of measuring, tracking, and improving the performance of a unit-level franchise. If a franchise does not have a unitary solidarity economy, it is not an reversible concept, because without a unitary solidarity economy, you cannot have a strong ROI.
Improving the economy of the units is basically reduced to generating more revenue and optimizing costs. In terms of sales, brands need to promote more customer spending and frequency, or create a new revenue stream such as off-premises, catering or wholesale. Optimizing costs does not necessarily mean cutting back, but being creative and finding a better alternative to do the same.
Related: How to create multiple revenue streams for your business
Here are five real ways to improve the economy of the units in today’s challenging restaurant landscape.
With restaurants still adjusting to the post-pandemic outlook and soaring inflation, restaurant food costs are rising. Wholesale food costs rose 17.1% in the last 12 months, the largest increase since 1974, according to NRA data. While one solution is to raise prices, it’s a good line before you take the customer’s price out of your restaurant. According to Technomic research, QSR restaurant customers find that $ 7 per ticket is a fair price, but they found that $ 10 per dish was becoming too expensive. For reference, the average QSR entry price is $ 10.08.
Fortunately, there are other alternatives to designing the menu for a stronger unit economy, without alienating loyal customers.
First, evaluate the menu and remove the overpriced items. Then identify cheap bestsellers and create new menu items that use these less expensive ingredients. Finally, at the point of sale, have your computer or digital online ordering suggestions suggest adding high-margin items such as drinks and companions to an order. When Rise Southern Biscuits & Righteous Chicken switched to digital ordering, side sales skyrocketed based on suggestions requested during the ordering process.
Also, as supply chain issues persist, it is advisable to remove menu items that are too difficult or expensive to keep in stock.
Finally, consider how long it takes to prepare menu items and eliminate dishes that require labor to increase profits.
Related: When rebellious foods broke the recipe for unity economy
Remember Outback Steakhouse? When co-founder Chris Sullivan worked for Bennegan’s and Chili’s, he noticed the discrepancy between how much it cost to stay open for lunch and the constant lack of profits. When he finally founded Outback, Sullivan suggested that by going through lunch, the operation would be easier and more cost-effective to run, and he was right. Also, because the brand didn’t focus on the business lunch audience, they could avoid the high real estate costs that are typical of downtown downtown areas.
It may seem counterintuitive that to increase revenue, you need to reduce hours, but it is not. Pay attention to the times of day when you experience maximum income, and if there are gaps in profits between certain hours, it could increase the unit’s economy to close for slower periods.
Alternatively, there are some franchise concepts where homeowners can make money while they sleep, literally. Brooklyn Dumpling Shop, the fastest growing dough ball franchise in the country, can be kept open 24 hours a day by using a robotic kitchen and an automatic system. Similarly, PayMore, the leading retailer of used and new electronics, has several online stores in addition to the physical location, allowing the company to generate revenue 24 hours a day.
Related: A billionaire who operates more than 2,400 franchises knows that these types of franchisees make more money
The use of new technologies can improve the operation of the restaurant, efficiency and reduce costs. Taffer’s Tavern reinvented the full-service catering industry by creating “the kitchen of the future.” Taffer used technology to reduce the kitchen workload by 60% and systematized the operation so that training time was also significantly reduced, saving time and money while optimizing profits.
However, if you can’t reinvent the back end of your operations, you can still implement another technology to reduce your workforce, improve your operations, and increase your profitability. For example, when Rise switched to ordering exclusively online and at the newsstand, the brand significantly eliminated labor costs by eliminating the need for ATMs. In addition, the average order of tickets increased, an advantage for everyone.
Related: Jon Taffer on communication, marketing and franchise consistency
Lower labor costs
Labor costs in the catering industry rose 10% in 2021, according to Restaurant Business data. With factors such as the Great Resignation contributing to a tight labor market, restaurants are raising wages to attract workers, and considering how reigning in some of these labor costs will help improve the economy of the units.
An easy solution that any restaurant can implement? Add menu packages. Selling a product for $ 20 costs as much labor as selling $ 10.
For multi-unit franchise operators, consider hiring a super manager to oversee multiple locations, rather than having general managers in each unit. You can hire a $ 80,000 supervisor to oversee three stores, instead of paying $ 60,000 per CEO, significantly reducing payroll costs.
Some emerging franchise concepts were created to run smoothly. Curry Up Now, a fast and casual Indian concept, does not require a trained Indian chef in every restaurant, a requirement that can often be expensive. Similarly, the dessert franchise, JARS, does not require a trained pastry chef either. By structuring a restaurant that can operate without high cost positions and still offer quality, labor costs are drastically reduced. Brands like Taffer’s Tavern, Rise and Brooklyn Dumpling Shop were developed to depend on technology rather than human hands, drastically reducing costs.
Lower auxiliary costs
Review additional costs, such as cleaning, maintenance, and rental, and get a creative idea of where you can reduce it. Do you need a separate cleaning service or is it a parallel job that current staff can do in downtime? The Sudden Pole Service, for example, causes employees to maintain the store.
Rent typically costs between 8% and 10% of sales. Consider negotiating with your landlord for a better deal and get creative. For example, would they grant a lower rent in exchange for a percentage of sales?
Remember, there are countless items in a restaurant’s P&L, as well as food and labor. Review your inventory carefully and see if there is a less expensive way to get it.
With so many franchise concepts available and margins narrowing, the importance of the solidarity economy of the units is imperative. In today’s marketplace, following these five tips to improve your unit economy will make your franchise opportunity more attractive to new franchisees and investors.
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