A profitability metric calculated as revenue minus cost of goods sold and operating expenses (before interest, taxes, depreciation, and amortization). In franchising, unit-level EBITDA determines royalty room and franchise viability.
EBITDA strips out financing structure (interest, taxes) and accounting choices (depreciation, amortization) to show operating profitability. In a franchise context, two EBITDA figures matter: unit-level EBITDA (how profitable a single franchise unit is) and franchisor-level EBITDA (how profitable the franchisor business itself is).
Typical unit-level EBITDA ranges by sector: - Quick-service restaurants: 15-22% - Casual dining: 10-18% - Coffee, beauty, fitness: 18-28% - Home services: 20-35% - Education: 22-35%
The franchisor takes a percentage off this figure (royalty plus brand fund, typically 5-10% of revenue combined). What remains is the franchisee's EBITDA — and it needs to support a competitive return on the franchisee's invested capital.
Franchisor-level EBITDA is a different math. A 100-unit franchise system collecting 6% royalty on $800K average unit revenue produces $4.8M/year in royalty revenue — high-margin recurring income with substantial operating leverage as the system scales.
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Book a 30-min strategy callThe financial performance of a single franchise unit — revenue, gross margin, operating expenses, and EBITDA — at typical operating volume. Strong unit economics are the precondition for a sustainable franchise system.
The ongoing percentage of franchisee revenue (typically 4-12%) that the franchisee pays the franchisor for the continuing right to use the brand, technology, training, and support throughout the franchise term.
The annual EBITDA a franchisee generates divided by their total invested capital (Item 7) — typically 15-30% for healthy franchise opportunities. ROIC below 12% kills sales pipelines.
The only optional disclosure in the FDD — Item 19 is where franchisors can disclose actual financial performance data (revenue, gross profit, EBITDA) for franchised or company-owned units, supported by a reasonable basis and substantiated records.