How looking beyond sales volume creates fairer comparisons, stronger franchisee support, and a clearer picture of brand performance.

When a franchisor reviews performance across the brand, sales often dominate the conversation. Which locations have the highest volume? Which franchisees are growing fastest? How is average unit volume trending?

Those questions matter. But they do not fully answer a more important question: How successfully are franchisees operating the businesses behind those sales?

A restaurant generating $2 million annually may command attention. A newer location generating $1.2 million may appear to have considerable ground to cover. Yet the lower-volume franchisee could be managing food, labor, and other expenses more effectively—and earning as much operating profit.

For franchisors, that distinction should shape how success is measured, how best practices are identified, and how support is delivered.

Percentages can be a game changer because they give franchisors a common basis for comparing businesses of different sizes and ages. They reveal what happens to each dollar of revenue.

Comparing a First-Year Franchisee With a Fifth-Year Franchisee

An established location has had time to build awareness, repeat business, community relationships, and a more experienced team. A first-year location is still developing those advantages.

Comparing their annual sales alone can tell a franchisor more about their respective stages of development than their operating effectiveness.

Consider this hypothetical comparison:

Performance measure	First-year location	Fifth-year location
Annual net sales	$1,200,000	$2,000,000
Food and beverage cost	29% / $348,000	33% / $660,000
Total labor cost	30% / $360,000	34% / $680,000
Combined food and labor cost	59% / $708,000	67% / $1,340,000
Other operating expenses	31% / $372,000	27% / $540,000
Operating profit	10% / $120,000	6% / $120,000

All examples are hypothetical illustrations, not recommended benchmarks or expected franchise results. Operating profit in this comparison includes franchise fees and comparable management compensation within operating expenses, and is before interest and income taxes.

The established location generates $800,000 more in sales. Both locations generate $120,000 in operating profit.

That should change the franchisor’s assessment.

The newer franchisee may need help building traffic while preserving strong operating discipline. The established franchisee may need help identifying why food and labor consume a larger share of revenue.

The franchisor also has an opportunity to learn from both. What is the established operator doing to attract customers? What is the newer operator doing to manage inventory and scheduling?

A sales leaderboard identifies volume leaders. A percentage-based review helps identify operating strengths and support needs throughout the brand.

Percentages help level the playing field across time, but they do not eliminate the effects of maturity, geography, format, or sales mix. Franchisors should compare equivalent periods and similar operating conditions, then use the differences to guide investigation.

Higher Royalty Revenue Does Not Tell the Whole Story

For a franchisor collecting royalties as a percentage of sales, higher unit volume can improve the franchisor’s revenue even when the franchisee’s profit margin weakens.

Using a hypothetical 6% royalty, the $2 million location above generates $120,000 in annual royalties. The $1.2 million location generates $72,000. Those royalties are already included in the operating expenses in the example.

From the franchisor’s revenue perspective, the higher-volume location contributes substantially more. From the franchisee’s operating-profit perspective, the two locations deliver the same dollars.

A complete assessment needs both perspectives.

If leadership watches sales and royalties without examining franchisee margins, it can overlook pressure affecting owners’ ability to reinvest, maintain equipment, develop managers, and sustain the customer experience.

The question is broader than whether the brand is selling more. It is whether its franchisees are building stronger businesses as sales grow.

A Percentage Point Makes Support Tangible

At $1.5 million in annual sales, one percentage point represents $15,000.

If a franchisor helps a franchisee reduce food cost from 32% to 31%, that represents $15,000 in annual savings at unchanged sales. Improving labor from 31% to 30% represents another $15,000.

Together, those changes could improve operating profit by $30,000, assuming other costs remain unchanged and quality, service, and revenue are preserved.

Now consider 20 locations, each generating $1.5 million. A one-percentage-point improvement across their combined $30 million in sales represents $300,000 in potential annual improvement.

The franchisor should then ask what support could produce that result: better inventory training, more useful scheduling tools, improved purchasing practices, or a targeted review of waste.

This translates support from a general promise into a measurable opportunity.

Precision matters here. Moving from 32% to 31% is a decline of one percentage point. It is approximately a 3.1% reduction relative to the original ratio. Franchisor teams should communicate the distinction consistently.

Build a Brand Dashboard That Explains Performance

“Know your numbers” must become a shared management discipline between franchisor and franchisees.

A useful dashboard connects sales, operating costs, customer activity, and profitability:

KPI	What it helps the franchisor assess
Food and beverage cost percentage	Purchasing, inventory, portions, waste, pricing, and product mix
Total labor percentage	Scheduling, productivity, overtime, training, and staffing needs
Prime cost percentage	The combined burden of food, beverage, and labor
Occupancy percentage	How well revenue supports the location’s occupancy costs
Operating profit margin	How much revenue remains after defined operating expenses
Comparable-period sales growth	Whether a location is progressing against an equivalent period
Transaction growth	Whether customer activity is increasing or declining
Discount percentage	The revenue surrendered through promotions and whether it produces worthwhile results
Refund or complaint rate	Whether operating changes are protecting customer experience

For cost ratios, divide the defined expense by the corresponding net sales and multiply by 100. Prime cost percentage equals combined food, beverage, and total labor costs divided by net sales, multiplied by 100.

Definitions must be consistent. Total labor cannot mean hourly wages at one location and wages, management salaries, payroll taxes, and benefits at another. Owner compensation, inventory practices, discounts, and sales-tax treatment also need clear reporting rules.

A polished dashboard built on inconsistent accounting creates false confidence.

Targets should reflect the concept’s economics and relevant peer groups. A percentage that works for one service model may be inappropriate for another.

Drill Down Before Prescribing a Solution

Suppose one franchisee reports food cost of 33%, compared with 29% among similar locations.

At $1.5 million in sales, the four-point difference equals $60,000. That identifies a potentially important issue, but it does not establish that $60,000 is recoverable through better execution.

The franchisor must investigate.

Are supplier prices different? Is the restaurant selling a different mix of products? Are portions inconsistent? Is waste being recorded? Are inventory counts accurate? Are discounts reducing sales without reducing ingredient costs?

Comparing actual food cost with theoretical food cost based on recipes and sales mix can help distinguish product economics from execution problems. Beginning inventory plus purchases minus ending inventory, with consistent adjustments, also gives a more useful picture of consumption than purchases alone.

If the gap appears at one location, targeted coaching may be appropriate. If it appears across a region, purchasing or distribution deserves attention. If it appears throughout the brand, leadership should examine pricing, menu design, training, or the model itself.

Percentages help franchisors determine whether a problem is local, regional, or systemic. Drilling down helps determine what to do about it.

Brand Averages Can Conceal Franchisee Distress

Imagine a three-location group:

Location	Net sales	Labor cost	Labor percentage
A	$2,000,000	$500,000	25%
B	$1,000,000	$350,000	35%
C	$1,000,000	$350,000	35%
Combined	$4,000,000	$1,200,000	30%

The combined labor ratio is 30%. Yet two of the three locations operate at 35%.

A franchisor reviewing only the combined result could miss the need for support at most locations in this group.

The combined ratio is sales-weighted. The simple average of the three location ratios is approximately 31.7%, and the median is 35%. Each answers a different question.

Franchisors should review the combined ratio, the typical location’s result, and the distribution of results. They should also track how many locations fall outside appropriate target ranges.

The same principle applies within a restaurant. A satisfactory weekly labor percentage can conceal an inefficient lunch period or a recurring scheduling problem on particular days.

Averages provide an overview. The distribution shows where attention belongs.

Sales Growth Must Be Read Alongside Customer Activity

Suppose a location’s monthly sales rise from $100,000 to $105,000: 5% growth.

Transactions decline from 5,000 to 4,750: a 5% decrease. Average spending rises from $20 to approximately $22.11, an increase of about 10.5%.

Revenue has increased while transaction activity has weakened.

For the franchisor, the support response should consider pricing, value perception, repeat business, local marketing, and service—not simply congratulate the operator on higher sales.

If similar patterns appear across the brand, leadership should investigate whether price increases are masking broader traffic pressure.

Growth percentages also require context. A newer location growing from $50,000 to $60,000 records 20% growth. An established location growing from $150,000 to $165,000 records 10% growth, but adds more revenue in dollars.

Read the growth rate, starting base, and dollar change together.

Use Comparisons to Deliver Better Support

Franchisors can make percentage-based analysis actionable through a consistent process:

1. Standardize reporting. Establish common definitions, reporting periods, and accounting treatments.
2. Create relevant comparison groups. Consider location age, format, market, sales band, and sales mix.
3. Review direction and variation. Compare results with the plan, prior comparable periods, and suitable peers.
4. Translate material gaps into dollars. Make the scale of the issue clear without assuming every gap is recoverable.
5. Investigate causes with the franchisee. Combine financial data with operating observations and the owner’s local knowledge.
6. Agree on an action and review date. Measure whether support improves financial results while protecting standards and customer experience.

A first-year franchisee should also be evaluated against its opening plan, recent trajectory, and comparable-stage locations. Where valid, an established franchisee can be assessed against prior-year periods.

Comparisons should encourage learning. Franchisees are more likely to engage when the numbers lead to practical assistance and shared best practices.

Final Thoughts

For franchisors, the power of percentages is the ability to see more clearly across the brand.

They bring a first-year and fifth-year franchisee into a more useful comparative perspective. They reveal operating strengths that sales rankings can overlook. They expose weaknesses hidden by seven-figure revenue and brand averages. They help leadership decide where training, tools, purchasing improvements, and field support can make a measurable difference.

But percentages must be read alongside profit dollars, cash needs, customer experience, and operating context. A strong ratio alone does not establish a healthy business.

“Know your numbers” should be an expectation for the franchisor as much as the franchisee.

Know what the locations are producing. Know what each dollar costs to generate. Know where performance differs. Know why.

The real measure of brand success is how effectively the system helps franchisees turn revenue into sustainable businesses.