Unit-Level Economics: Key To Scalable Franchise Growth And M&A Appeal
by Patrick Galleher, originally published on Forbes.com on October 20, 2025
When private equity or strategic investors evaluate a franchise brand, they aren’t starting with the brand story, marketing campaigns or the latest tech integrations. Those matter, but they’re secondary. The first question on the table is always: How healthy are the unit-level economics?
If the franchisees aren’t profitable, nothing else matters. Unit-level economics—the revenue, costs and margins of each location—are the foundation on which every growth strategy is built. They dictate how fast you can scale, how well you can attract new franchisees and, ultimately, what valuation you command when you decide to sell.
Why Investors Obsess Over Unit-Level Performance
From an investor’s perspective, unit-level profitability is the most reliable predictor of future success. Here’s why:
Sustainable growth beats flashy numbers.
A brand selling hundreds of territories looks impressive on paper, but if the existing units aren’t generating strong returns, that growth is a mirage. Buyers have seen too many “sell-first, support-later” models implode. A few high-performing units can’t offset systemic profitability issues.
Using lower risk means higher value.
Investors want scalability with minimal operational friction. Consistent unit-level profits across diverse markets signal a replicable model. That reduces risk, increases lender confidence and commands premium multiples during a sale.
Franchisee validation tells the real story.
No metric speaks louder than franchisee satisfaction. When operators consistently make money, they reinvest, expand and become your best recruiters. Private equity groups often speak to dozens of franchisees during diligence; if the story isn’t positive, deals stall.
The Metrics That Matter Most
So, what are investors zeroing in on during diligence?
Average Unit Volume (AUV): Strong top-line revenue is important, but smart investors dig deeper into how consistently it’s achieved across the system.
EBITDA Margins: The bottom line matters most. Buyers are looking for healthy, sustainable profit margins after royalties and operating costs.
Ramp-Up Time: How quickly do new units reach break-even and profitability? Faster ramps mean more attractive cash-on-cash returns for franchisees and faster scalability for the system.
CapEx Requirements: Lower upfront investment with high-margin potential is a winning combination.
What Franchisors Must Get Right Before Thinking About M&A
If you want your brand to attract strategic capital, here are three nonnegotiables:
1. Validate before you accelerate. Growth should follow, not precede, strong unit-level economics. Brands that sell aggressively without proving the model often end up retrenching later, sometimes fatally.
2. Invest in franchisee support. Your franchisees’ success is your success. Sophisticated buyers look at training programs, supply chain efficiencies and ongoing operational support as critical levers for margin improvement.
3. Build predictability into the model. Investors pay a premium for systems that are repeatable and resilient. That means strong operational playbooks, technology that drives efficiency and a clear path to multi-unit growth.
The Bottom Line
Franchising can be a beautiful model because it aligns incentives: Franchisors grow by helping franchisees succeed. But when it comes time to raise capital or sell, the spotlight shifts squarely onto unit-level economics. Brands that deliver consistent, attractive returns at the store level will always be best positioned to have their pick of investors and command the best valuations.
If you’re a franchisor, ask yourself: Would you buy your own brand if you were an investor? If the answer isn’t an emphatic yes, it’s time to shore up your unit economics before chasing scale.
