Vose SoftwareModelChoice decision tree · Restaurants
Franchise Expansion
Grow a three-restaurant chain with company stores, single franchises, a master franchise, or not at all?
From the model’s decision tree
Best first decision: Sell Franchises
The expected value of each first option when every later decision is also made well (the tree rolled back).
| First decision | Expected value | |
|---|---|---|
| Open Company Stores | $4,344,750 | |
| Sell Franchises | $6,315,000 | ✔ best |
| Master Franchise Deal | $2,496,500 | |
| Don't Expand | $0 |
| Measure | Value |
|---|---|
| Expected value of the best strategy | $6,315,000 |
| Best outcome on the best strategy | $10,200,000 |
| Worst outcome on the best strategy | $1,875,000 |
S-curve (cumulative probability) of Sell Franchises from the saved simulation.
The decision
A successful fast-casual restaurant chain with 3 existing locations is ready to expand. The brand has strong unit economics and proven customer appeal. The management team must decide the best growth strategy:
- Open company-owned stores — full control but high capital requirements
- Sell individual franchises — scalable with franchise fees and royalties
- Master franchise deal — partner handles expansion in a territory
- Don't expand — maintain current profitable operations
How the inputs are linked
The tree sheet has a parameter table above the decision tree. Store build-out cost, weekly revenue, and cost percentages are defined once and referenced by multiple branches. Changing a single parameter instantly updates all linked values.
The inputs that drive several branches at once:
- Build-Out Cost — drives capital needs for company and franchise paths
- Weekly Revenue per Store — income calculation in all operating terminals
- Royalty Rate — franchise and master franchise revenue streams
- Food/Labor Cost % — profitability in all company store scenarios
- Franchise Fee — upfront income from individual and master franchise paths
The decision tree
The tree has 1 decision, 3 chance events and 10 outcomes. The best path is open: at every decision the best choice is marked, and the expected value beside each branch counts every cash flow from the start. Open any other branch to see what follows it.
DecisionChance event+$ cash flow on the branch
Open Company Stores −$2,250,000expected $4,344,750
Chance: Company Store Performance- 35% Strong Sales +$11,850,000payoff $9,600,000
- 45% Average Sales +$5,025,000payoff $2,775,000
- 20% Weak Sales +$930,000payoff −$1,320,000
Sell Franchises −$900,000expected $6,315,000 ✔ best
Chance: Franchise Sales Pace- 30% Fast Uptake (All 20) +$11,100,000payoff $10,200,000
- 50% Moderate Uptake (12) +$6,660,000payoff $5,760,000
- 20% Slow Uptake (5) +$2,775,000payoff $1,875,000
Master Franchise Deal −$50,000expected $2,496,500
Chance: Master Franchise Outcome- 45% Partner Succeeds +$4,400,000payoff $4,350,000
- 35% Partner Struggles +$1,670,000payoff $1,620,000
- 20% Partner Fails −$90,000payoff −$140,000
- Don't Expandpayoff $0
Change the numbers. Open the workbook with ModelChoice, change a probability or a cost in the tree, and the best decision updates at once.
Key assumptions
| Assumption | Value | Notes |
|---|---|---|
| Franchise Fee | $35,000 | One-time fee collected per franchise sold |
| Store Build-Out Cost | $450,000 | Cost to build and equip one store |
| Avg Weekly Revenue per Store | $25,000 | Average gross weekly revenue per store |
| Royalty Rate | 6.0% | Ongoing royalty as % of franchisee revenue |
| Marketing Fund % | 2.0% | National marketing contribution rate |
| Food Cost % | 30.0% | Cost of goods sold as % of revenue |
| Labor Cost % | 28.0% | Labor expense as % of revenue |
| Rent per Store per Year | $72,000 | Annual lease cost per location |
| Master Franchise Territory Fee | $500,000 | Upfront fee for master franchise rights |
| Number of Company Stores | 5 | Company-owned stores to open |
| Number of Franchise Units | 20 | Target franchise units to sell |
| Analysis Period | 5 | Time horizon for revenue projection |
The figures are illustrative: the companies and numbers are invented for teaching.
Try it in ModelChoice
- Increase Weekly Revenue. Watch all strategies improve together
- Raise Food Cost %. See company stores hurt more than franchise model
- Change Franchise Fee. Observe impact on franchise vs company strategy
- Run Sensitivity Analysis. Tornado chart shows which parameters matter most
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Further reading
Download the workbook and open it with ModelChoice. The free trial opens every example.
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An illustrative example: the figures are invented for teaching. Last updated 9 October 2026.