Your franchise’s success depends on your unit-level economics. Every decision you make for each location — no matter how small — directly impacts your franchise profitability. While employee turnover costs are a key factor influencing your efficiency and bottom line, there are more underlying factors to consider.
The good news is that you can control your unit-level economics by investing in better employee training for your franchise. Employee training goes beyond improving job performance; it builds engagement, efficiency, and loyalty, leading to lower employee turnover costs and stronger franchise profitability.
In this article, we’ll discuss the fundamentals of unit-level economics, the impact of employee turnover costs, and why investing in employee training is the answer to controlling costs and strengthening your franchise infrastructure.
What Are Unit-Level Economics?
Unit-level economics measures the cost of selling or making each unit of your product or service, helping you assess the financial performance of each franchise location. By analyzing direct and fixed expenses, such as labor, rent, and inventory, against revenue, you can determine which locations are performing well and pinpoint areas that need improvement to increase profitability.
Underlying Factors Affecting Unit-Level Economics
Now that we’ve defined unit-level economics, let’s look at some key underlying factors supporting unit-level economics for franchises and franchisees.
Operational Efficiency & Technology
A well-run franchise reflects how well you manage your business operations and utilize technology to improve efficiency. To reduce costs and improve workflows, use a point-of-sale system (POS), inventory management, and automation for routine tasks.
Strong Unit-Level Economics & KPI Tracking
Happy customers can lead to repeat business, and your franchise’s unit-level economics depend on the customer experience. To improve customer satisfaction and retention, implement a loyalty program, ask for feedback, actively engage with customers on social media, and equip your franchisees and their staff with a robust training program they can leverage to prioritize the guest experience.
Customer Experience & Retention
Strong unit-level economics results from consistently tracking the right key performance indicators (KPIs). Track financial metrics like cost of goods sold (COGS), labor percentage, rent percentage, and EBITDA consistently to get a clear picture of your franchise profitability at the unit level and make more data-driven decisions to improve business performance.
Strong Franchise Business Model
Your franchise’s success depends on a strong business model. Establish transparent operating processes and prioritize employee training to reduce franchise turnover and maintain consistency at each location. The more streamlined and scalable your business model, the more resistant each unit becomes to economic fluctuations and operational disruptions.
Franchisee Engagement & Community
Nothing is more powerful than word of mouth, and what better way to improve your unit-level economics than by networking with your peers and engaging with the local community? To spread the word about your business, take advantage of networking opportunities, franchisee forums, mentorship programs, and open houses.
How Employee Turnover Costs Impact Unit-Level Economics in Franchises
Another key factor affecting unit-level economics is employee turnover costs. Fluctuations in employee turnover aren’t just a staffing issue — they directly affect your franchise’s profitability. Without a stable workforce, your franchise can struggle to maintain consistent operations and achieve its revenue goals.
A research study by WD Partners looked at 21 established restaurants and found five key areas that impact profitability:
- Service capability
- Process improvement
- Labor deployment
- Equipment and space
- Unit management productivity
They discovered that customers will likely go elsewhere if wait times approach or exceed 30 minutes at a unit, costing the restaurant potential sales growth. High turnover exacerbates this issue by creating staffing shortages, which leads to slower service and dissatisfied customers.
How Employee Turnover Costs Affect Your Franchise Profitability
When employees leave, associated costs accompany them. Let’s say you have 50 employees and a 20% employee turnover rate, averaging 10 yearly resignations. According to the Bureau of Labor Statistics, the median weekly earnings for a full-time employee’s weekly earnings was $1,192. When you take this amount and add 30% for the cost of employee benefits, it adds up to $1,549.60 per week in compensation per employee, which is also equal to:
- $1,549.20 x 52 weeks = $80,579.20 per year for each employee
- $80,579.20 x 10 turnover employees = $805,584.00 in yearly turnover costs
- Multiply that across franchise locations, and the financial burden grows exponentially
High turnover also requires ongoing training and distracts managers from core operational tasks. It takes time for new hires to reach maximum productivity. So, if a company’s efficiency drops by 5% due to undertrained staff, this can translate to tens of thousands in lost revenue per location over a year.
How can franchises and franchisees address this? The answer is to focus on proactive retention strategies for operational efficiency and unit-level profitability. Here are a few key ways you can address employee turnover costs and strengthen your unit-level economics:
- Invest in employee training: A well-structured onboarding program and ongoing training opportunities help your employees feel confident in their roles and keep them engaged
- Offer competitive pay & benefits: Pay your employees fairly and offer flexible benefits and incentives like flexible scheduling
- Leverage AI technology and automation: Find AI tools to automate routine tasks, improve productivity, and ease workloads
- Improve scheduling & staffing: Consider using innovative scheduling tools to ensure your franchise is adequately staffed during peak hours to avoid employee burnout and disruptions to your operations
How to Calculate Employee Turnover Costs
If you’re wondering how to calculate employee turnover costs, look at your franchise’s direct and indirect expenses. These include:
- Recruiting and hiring costs: Time and fees spent on recruiting and interviewing
- Onboarding and training costs: Time and resources spent on bringing new employees up to speed on processes
- Lost productivity: The time it takes for a new employee to reach their ultimate performance
In addition to calculating employee turnover costs, it’s essential to look beyond the numbers and ask yourself, “Why did this employee decide to leave?” Uncovering the answer to this question can help you identify the root causes and lower future turnover.
Turnover Calculator
Use our turnover cost calculator to calculate your employee turnover cost more efficiently. This will help you see the impact turnover has on your bottom line.
What is an Acceptable Turnover Rate?
Now, you may think, “What is an acceptable turnover rate?” The truth is, there’s no universal standard of what is deemed to be an acceptable turnover rate. Of course, this varies by industry, so keeping track of your franchise turnover for each location is essential.
Improve Your Employee Turnover Costs With Ongoing Training
Investing in employee training is one of the most effective strategies for reducing franchise turnover and improving your bottom line. An engaged workforce naturally has higher productivity and offers a better customer experience, leading to a healthier bottom line.
Studies show that companies investing in employee education programs can increase their retention rate by 20% to 40%. Ongoing training equips employees with the skills they need to succeed, creating a sense of value and belonging.
Start Seeing a Return on Your Training Investment
At LearningZen, our LMS solution allows you to personalize your franchisee training program to keep employees engaged and informed while potentially reducing turnover rates for franchises like yours. Contact us today to learn more.
