Your Franchise Is Growing. But Are Your Franchisees Making Money?

By Sean Goldsmith

Stronger franchise economics can improve margins, build franchisee confidence and encourage successful operators to invest again.

Growing a franchise used to put most of the attention on openings, territories and system sales. With costs still putting pressure on operators, the finance team has a more important question to answer: are franchisees making enough money to keep investing?

Franchise businesses love numbers: units opened, territories sold, system sales and average unit volume. All of them tell you something useful about a growing brand, but there is one figure that matters more to the person who actually wrote the cheque: what is left at the end of the month?

That is why the role of the franchise CFO is changing. Managing the franchisor's finances remains part of the job, but the better finance teams are spending much more time understanding what happens inside individual franchise businesses. They want to know what operators are paying for labour, rent, stock, technology and debt, and why two franchisees with similar sales can end the year with very different returns. For a growing franchise, knowing the answer is becoming a serious competitive advantage.

Sales Don't Tell the Whole Story

A franchise can have excellent sales and still leave an operator disappointed with the return. Take a location producing $1.5 million in annual revenue. That figure looks impressive in a franchise presentation, but the owner cannot spend revenue. Payroll, occupancy, supplies, royalties, marketing, insurance, technology and finance costs all have to come out first.

The job for finance is to understand where that money is going and, crucially, what the better-performing franchisees are doing differently. This has become more important as operating costs have risen. The International Franchise Association's 2025 franchisor survey found that 42% of franchisor executives regarded unit economics as the most important factor affecting the franchisor-franchisee relationship.

That makes sense because franchisees can work through difficult trading periods when they understand what is happening and can see a route to better performance. Committing another few hundred thousand dollars to a second or third location is a much harder decision when the return on the first one remains unclear.

There Is Gold in the Numbers

One of franchising's great advantages is the ability to compare businesses running substantially the same model. An independent owner can compare this year's payroll with last year's, while a franchise system may be able to compare one operator with 20, 100 or 500 others facing many of the same costs and operating requirements.

Suppose one restaurant is spending 34% of sales on labour while comparable restaurants in the system are operating at 29%. The useful conversation isn't simply whether 34% is good or bad; it is what those other operators are doing differently. They may schedule more effectively, have a better sales mix, operate a more efficient store layout or manage their teams differently. Good financial data tells the franchisor where to look.

For that comparison to work, the numbers have to be consistent. Franchisees using different accounting methods and classifying expenses in different ways make benchmarking far less useful. Standardising financial reporting may not be the most exciting project a growing franchisor undertakes, but it can become one of the most valuable.

The CFO Can Help the Operator

A franchise CFO who understands unit economics can help the operations team identify problems before they become serious. Finance can see where labour is moving in the wrong direction, where occupancy costs are becoming difficult and whether a new supplier price is quietly removing margin across the network.

The same discipline can improve decisions made by the franchisor. Does the new store design need to cost that much? Is the latest technology requirement saving franchisees enough time or money to justify the expense? Is a promotion increasing transactions while leaving the operator with less profit? Those are financial questions, but the answers affect almost every part of the franchise.

This does not turn the CFO into the person who blocks investment. Better numbers make it easier to decide where investment is producing a return, where costs can be reduced and where the franchisor can help operators improve performance.

Profitable Franchisees Buy Again

Financial discipline also has a direct effect on franchise development. Existing franchisees can be some of the best sources of growth in a healthy system because they already know the business, understand the operating model and have experienced the relationship with the franchisor. When those operators decide to open again, the brand gains growth from someone who does not need to learn the business from the beginning.

That can work well for both sides. The franchisee can spread management experience and infrastructure across more locations, while the franchisor expands with an operator it already knows. Capital is being deployed by someone with direct experience of the business rather than someone making a decision largely from projections and initial due diligence.

That cycle still depends on the first unit producing a return worth repeating. Improving unit economics can strengthen franchisee validation, encourage multi-unit ownership and give successful operators greater confidence to put more capital behind the brand. A system where existing franchisees actively want another location has a powerful source of expansion already inside the network.

Finance Is Becoming a Growth Job

The best franchise CFOs will increasingly be judged on more than the financial health of the franchisor. They will help management understand whether the business works for the people funding much of its expansion, which means collecting better unit-level data, comparing like-for-like businesses and being prepared to change decisions when the numbers show that franchisee returns are under pressure.

Done properly, that discipline can make the franchise model stronger. A well-run system gives independent operators access to information they could rarely produce on their own. Instead of one business owner trying to work out why margins have slipped, the network can identify what successful operators are doing and share those lessons across the system. That is one of the practical advantages franchising can give operators when financial data is collected and used well.

What We Can Learn From This

Growing franchisors should ask their finance teams to understand the franchisee's P&L almost as well as their own. Standardised reporting and sensible benchmarking can show operators where money is being lost, help the franchisor make better decisions on costs and give successful franchisees greater confidence to invest again. Some of the healthiest franchise growth comes from experienced operators opening their second, fifth or tenth location, so improving unit economics can become a direct route to expansion. The new franchise CFO has a straightforward job: help make growth worth repeating.

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