The Most Important Metrics for Multi-Unit Businesses

Multi-unit businesses are inherently complex, with an array of levers that can determine success or failure. So, which metrics should you track and focus on improving?

Headliners

Net Revenue and EBITDA

No need to overcomplicate this—Net Revenue and EBITDA are the headline metrics for multi-unit businesses and the two numbers most often referenced when determining valuations. Of course, you’ll want to pay attention to the YoY change in Net Revenue and EBITDA, as well as your EBITDA Margin (EBITDA as a % of Net Revenue).

Unit Economics

Same-Store Sales

Same-Store Sales measures the year-over-year % change in sales for units that were open in both the current year and the previous year. It is a critical barometer of the health of a multi-unit business because profitability can expand or erode quickly as sales fluctuate given the typically high fixed costs—minimum labor requirements and occupancy costs—of multi-unit operations. Breaking same-store sales into its drivers of order count and average order value (AOV) is also useful and can inform where to focus in order to drive improved Same-Store Sales.

Average Unit Volume

Average Unit Volume (AUV) is the average Net Revenue of your units on an annualized basis. Companies often only include “mature” units (e.g., units that have been open for at least 1-3 years, depending on the business) when citing this figure. AUVs can vary widely across successful multi-unit businesses, depending on the concept—the important thing is that you increase your AUV over time through a combination of Same-Store Sales growth and the opening of new units with AUVs at least on par with those of older units.

Gross Margin, Labor %, and Occupancy %

Gross Margin (Gross Profit as a % of Net Revenue), Labor % (Labor Expense as a % of Net Revenue), and Occupancy % (Occupancy Expense as a % of Net Revenue) should be monitored closely by all multi-unit businesses. Similar to AUV, these metrics can vary widely across successful multi-unit businesses—certain models are relatively high Gross Margin with high Labor %, while others are relatively high Labor % with low Occupancy %. Ultimately, these metrics need to balance such that the business can achieve an attractive Four-Wall Margins and Cash-on-Cash Returns. Teams should monitor these metrics for internal consistency across units and over time. Broadly speaking, higher Net Revenue units within a given multi-unit business will outperform their peers on these metrics.

Four-Wall Margin / Unit-Level Margin

Four-Wall Margin is the key indicator of unit-level profitability and equals the EBITDA of your units divided by their Net Revenue, excluding corporate overhead (i.e., General & Administrative Expense). Other common names for this include Unit-Level Margin, Unit Contribution Margin, Store-Level Margin, and Store-Level Contribution Margin. Four-Wall Margins vary widely across verticals, with grocery stores operating with notoriously low margins (but high AUVs) and fitness concepts tending to operate on the upper end of the scale. Once again, Four-Wall Margin is best viewed within the context of a given business—i.e., companies should ensure that their Four-Wall Margins support sufficiently attractive Cash-on-Cash returns, are stable-to-improving, and tend to increase across the portfolio in units with higher Net Revenue.

Net Investment

Net Investment includes capital expenditures net of tenant improvement allowances, pre-opening expenses, and working capital at a unit level. Pre-opening expenses should include any expenses incurred in the opening of a new unit outside of capex and working capital. These expenses typically include labor (hiring and training new employees), occupancy, travel, marketing, and legal fees. Multi-unit businesses often inadvertently inflate their Cash-on-Cash Returns by excluding pre-opening expenses from their Net Investment. Working capital is negligible for many multi-unit businesses and, as a result, often ignored in Net Investment calculations. However, businesses with higher working capital demands (e.g., apparel retailers with significant inventory) should make sure to include it.

Cash-on-Cash Return

Cash-on-Cash Return equals your Four-Wall EBITDA divided by your Net Investment and is typically limited to units that have reached maturity (1-3 years since opening). It is probably the simplest and most common measure for unit-level return-on-investment. Cash-on-Cash Return is close to an “all-in” metric, meaning that, unlike AUV or Four-Wall Margin, it can be compared across businesses and multi-unit verticals and still serve as a reliable indicator of the relative levels of performance of those businesses.

Unit Growth

Unit Count

Unit Count tracks the number of open units, typically at the end of a given time period (e.g., quarter or year). Easy!

Net Unit Growth Rate

Net Unit Growth Rate measures the %age change in Unit Count, most commonly on a year-over-year basis. It is a net number, meaning it accounts for both openings and closures.

Overhead

G&A %

Outside of Unit Economics, General & Administrative Expense as a % of Net Revenue is the key driver of the profitability of multi-unit businesses. This includes all operating expenses not directly attributable to units. G&A % generally declines as Net Revenue increases, as businesses improve their leverage on overhead resources.

Customer Health

Active Customers

Multi-unit businesses, particularly those that are growing their Unit Counts, need to grow their Active Customer bases in order to maintain growth over the long-term. The calculation of Active Customers should be tuned according to the nature of the business—high frequency businesses such as coffee shops might want to define a customer as active if the customer has transacted in the past 90 days, while lower frequency businesses such as car repair shops might lengthen the window to 365 days. “Subscription” businesses like gyms may choose to simply measure this according to the number of active subscriptions/memberships. As many multi-unit businesses are seasonal, it can be helpful to look at the % change in Active Customers on a year-over-year basis.

New Customers

New Customers is the count of customers that purchased or subscribed for the first time in a given period. Similar to Active Customers, the % change of New Customers can also be calculated on a year-over-year basis and is a key leading indicator of the future sales growth of the business. Earlier stage businesses can often grow robustly by increasing the value of each customer as they optimize their product/service offerings and pricing, but growth in New Customer count is typically required to sustain robust, long-term growth.

Customer Retention, Revenue Retention, and CLV

As you acquire New Customers, you’ll want to track how well your business is retaining those customers and the Customer Lifetime Value (CLV) of those customers over time. Traditionally this is achieved through cohort analyses, whereby each customer is assigned to a monthly or quarterly cohort based on their ‘acquisition date’ and the Customer Retention, Revenue Retention, and CLV is tracked over time by maturity (typically the number of months since the acquisition date). Stable or even improving retention and CLV across cohorts for a given level of maturity is a positive sign that your business will be able to sustain growth without needing to significantly ramp up its rate of New Customer growth.

NPS / CSAT

NPS (Net Promoter Score) and CSAT (Customer Satisfaction) surveys are common methods for tracking the sentiment and satisfaction of your customers. Benchmarks for these ratings vary widely across verticals, but tracking them over time for your business gives you insight into whether the experience you’re providing to your customers is improving or degrading. Identifying and acting on the key themes of the feedback can also help you improve retention and CLV. Feedback is a gift!

Employee Health

Employee Turnover

Employee Turnover measures the %age of your workforce that turns over in a given period of time. Benchmarks for Employee Turnover vary widely for multi-unit businesses depending on the vertical, but it can be helpful to track for your business over time by region and unit in order to inform decisions around employee experience, management, and compensation. Spikes in Employee Turnover unfortunately can negatively impact all the other metrics discussed here.

Honorable Mentions

Sales per Square Foot

Sales per Square Foot can be useful for comparing and understanding the drivers of sales productivity of units with similar square footages for a given multi-unit business. However, Sales per Square Foot in isolation can be misleading—for a given multi-unit operator, units with lower square footage will almost always have higher Sales per Square Foot, all else equal. In addition, multi-unit operators with larger footprints tend to have lower Sales per Square Foot, while higher Sales per Square Foot is not always associated with lower Occupancy %s or higher Four-Wall Margins. Cash-on-Cash Return and other Unit-Level ROI metrics (IRR, Payback Period) tell a more complete story about the success of a company’s model.

Customer Acquisition Cost

Customer Acquisition Cost can be tricky to calculate for multi-unit businesses given the pivotal role of the brick-and-mortar presence in acquiring new customers (which effectively deflates the CAC if crudely calculated as Marketing Spend per New Customer). As a result, this metric and its implications (how much to spend on marketing) should be treated with caution. The best practice is to run experiments to identify the incremental impact of Marketing Spend on New Customer acquisition, and to use that CAC and its relationship to CLV to inform Marketing Spend.

% of Customers Transacting Digitally or that are Loyalty Members

Multi-unit businesses have the potential to increase Customer Retention and CLV via digital offerings (see Domino’s) and loyalty programs, but without appropriate follow through digital and loyalty membership penetration can easily turn into vanity metrics. If you prioritize these metrics in your company, make sure to pair them with other metrics like Customer Retention, Customer Frequency, and CLV to ensure the focus on digital and loyalty is contributing to improved results at the customer level.