What is a Franchise AUV? Average Unit Volume, Explained
Franchise AUV stands for average unit volume, and it can help you determine which franchise will give you the best return on investment. Learn more about AUVs, their importance when evaluating a franchise opportunity, and why it shouldn’t be the only thing you consider when choosing a franchise.
Franchise AUV is defined as the current average annual sales that the brand is recording across all operating locations. The AUV includes franchisee-operated locations and should also include franchisor-operated locations. When compared against start-up costs and other long-term fees and investments, the AUV should give a strong sense of the franchisee’s return on overall investment. Some franchisors will advertise their franchise profitability, including AUV, directly on their website; for others, you may have to consult the Franchise Disclosure Document (FDD).
Sales Growth Metrics
AUV also helps monitor how new franchise outlets perform. AUV is measured in part by “traffic and ticket.” Traffic refers to the number of customer visits and ticket refers to the customer’s average transaction amount per visit. Another sales determinant is same-store sales, a measurement of revenue generated by a store over a certain period of time. It is often compared to previous years to determine the growth of a franchise. When AUV growth is greater than same-store sales growth, that can indicate that new units have had a more have had higher sales than existing ones. A final metric that contributes to the growth of a franchise is unit growth; the number of units being added (or closed) over a certain time frame.
All three metrics should be considered when evaluating the profitability of a franchise. While AUV is useful for revenue comparisons, it does not reflect the profitability or overall success of a business. For example, a highly trafficked urban location paying premium rent costs may generate a higher AUV but end up less profitable than a lower-volume location in an area with lower rent costs. High-growth AUVs across multiple geographic locations demonstrate a repeatable, in-demand concept.
READ BETWEEN THE NUMBERS
While it can be difficult to identify an ideal or even typical franchise AUV that applies to all franchise concepts across the board, it might be fair to say that the AUV shouldn’t be the only number you focus on when considering a brand with which to invest. A $1 million AUV might seem like an awesome number, but if your initial investment is $900,000, it doesn’t carry the same weight as if your investment was $500,000.
To help put the AUV in perspective, compare a brand you’re potentially investing in with its direct competitors and find out which numbers are most in line with your goals. It’s a good point of discussion you can have with a franchisor who should be aware of how they compare to competing brands. Always conduct your own thorough research to determine the strength of your investment.
Consider the Whole Picture
Beyond a poor investment-to-AUV ratio, don’t be dazzled by a franchisor that advertises big numbers but doesn’t deliver on the multiple other aspects that make a franchising relationship successful. In addition to the financial return and longevity potential of the brand, aspects of the franchise relationship such as shared values and the support system are also key contributors to your success.
One of the major incentives to buy a franchise versus starting an independent business is to benefit from the backing of a proven brand system. This includes an internal support network stacked with industry experts who are also invested in your success. When support is poor or lacking on the part of the franchisor, there can be direct impacts to your success. Support includes training, marketing guidance, implementation of new technologies to keep pace with the market, and other key elements of franchise competitiveness.
Seek Out Other Franchisees
A franchise opportunity without a strong support system may end up hurting your business in the long run, even if a high franchise AUV was advertised to you before you signed your contract. The best way to learn about what this relationship could potentially look like for you is to speak to current franchisees from the brand.
THE BEST METHODS FOR THE BEST OUTCOMES
It is in the best interest of both the franchisor and franchisees to hit a high AUV, so what are some details that put both parties in the best position to succeed?
- Seasoned Business Owners. Franchisors who sign deals with seasoned or established business owners typically find the AUV becoming higher more quickly. This is due to franchisees requiring less training and startup support than someone coming into the business with less business acumen. Also, the return on investment for the more seasoned business franchisee can be faster to recoup.
- Multi-Unit Multi-Brand Franchisees. Another approach is when multi-unit owners of other franchise concepts expand their portfolio. These franchisees come in with years of experience and strong systems already in place that help the franchisee smoothly add additional brands to their portfolio. MUMBOs are able to scale quickly and build out markets.
REWARDS BEYOND PROFITS WITH TERIYAKI MADNESS
Teriyaki Madness shops are enjoying an AUV of $1.16 million* in gross sales, putting them in top competition with other leading fast casual restaurant franchises. Also named as one of the Top 40 Smartest-Growing Franchises by Franchise Times, Teriyaki Madness now boasts more than 125 shops operating across the U.S. (plus two each in Canada and Mexico), with 32% stacked same store sales growth from 2019 to 2021.
Teriyaki Madness talks a big game in terms of numbers, and they have the bowls to back it up.
Prospective multi-unit owners are drawn to this brand for its consistently growing popularity and industry recognition, which are key attributes of a solid investment. This brand doesn’t stop there; they take care of their franchisees at every level and ensure they have all the support they need to serve their communities, love their businesses, and build legacies with TMAD.
To learn more about what TMAD has to offer in terms of financial return, training, support, marketing expertise, and more, download the free Franchise Report.
*Refer to our Franchise Disclosure Document.