Controllable cost
Prime cost: food and labour, under 60%.
In restaurant and food franchises the core measure of store operations is prime cost: cost of goods sold plus total labour, including payroll taxes and benefits, as a share of gross sales. Well-run quick-service and food units hold it below 60%, and benchmarks put the healthy range at 55% to 60%.
The rest of each sales dollar has to cover the lease and the franchisor. Occupancy — rent, NNN charges and related costs — targets 6% to 10% of sales, and royalties with brand-fund contributions typically take 6% to 9% combined. A unit that lets prime cost drift above 60% squeezes the margin that services its debt.
Benchmarks
Seven numbers a lender and a franchisor both read.
Average unit volume measures top-line productivity and local demand. Same-store sales separate growth in existing units from growth that comes from opening new ones. Four-wall EBITDA is what the store earns before any corporate overhead, and it is the pool from which debt service and the owner's return are both paid.
Scroll sideways to see all columns
| Metric | Benchmark | How it is calculated |
|---|---|---|
| Prime cost | 55% – 60% of gross sales | (Cost of goods sold + total labour) ÷ gross sales |
| Occupancy cost ratio | 6% – 10% of gross sales | (Rent + NNN and related occupancy costs) ÷ gross sales |
| Royalty and brand fund | 6% – 9% of gross sales, combined | Set by the franchise agreement |
| Average unit volume | Vertical-specific; roughly $800K to $3M+ | Trailing twelve-month gross sales per unit |
| Same-store sales | Positive growth after inflation | Sales change across units open in both periods |
| Four-wall EBITDA | 15% – 25% of gross sales | Store operating income before corporate overhead |
| Debt-service coverage | 1.25x – 1.35x minimum | Cash flow available for debt service ÷ annual principal and interest |
The denominator
Every ratio divides by sales.
Look at the benchmark table again: prime cost, occupancy, royalties and four-wall margin are all percentages of gross sales. An operator can manage labour scheduling and food waste after opening. What they cannot manage after signing is the size of the trading area, the competition inside it, and the rent they agreed to pay for access to it.
That is how the same format, franchise agreement and lease can produce a healthy four-wall margin in one location and a loss in another. The franchise system sets the cost structure; the address sets the denominator.
