AUV vs. EBITDA vs. Owner Income

Three numbers that are not the same thing

Three figures dominate franchise conversations, and buyers routinely treat them as interchangeable. They are not.

AUV stands for average unit volume: the average annual revenue of a unit in the system. It is a sales figure and nothing more.

EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is a measure of operating profit that deliberately ignores how the business is financed, how it is taxed, and how its assets are written down over time.

Owner income is the cash that actually reaches the owner’s pocket after everything — including the loan payment and the tax bill.

The distance between the first and the third is the whole subject of this guide. In many franchise systems, a unit at the system average produces an owner income that a first-time buyer would find surprisingly small, and the arithmetic that gets you from one to the other is not complicated. It is just rarely shown.

A stylized unit P&L

The table below is a clearly labeled hypothetical. It is not drawn from any franchisor’s disclosures, it is not a forecast, and it does not describe any real business or brand. It exists to show the shape of the calculation. Every percentage varies enormously by industry, by market and by operator; a quick-service restaurant, a tutoring center and an automotive shop have entirely different cost structures.

Illustrative only. Hypothetical figures for explanation. Not a projection and not a representation of any franchise system’s results.

Walking the layers

Cost of goods sold (COGS) is the direct cost of what you sell — food, parts, oil, retail product, printed materials. In franchise systems, COGS is often partly outside your control, because Item 8 of the FDD may require you to buy specified items from the franchisor, an affiliate or a designated supplier. That is a cost line and a bargaining-power question at the same time.

Store labor is hourly and salaried staff below the general manager, plus the burden that goes with them: employer payroll taxes, workers’ compensation, and any benefits. Buyers frequently model wages and forget the burden, which commonly adds 10 to 20 percent on top of gross wages.

Occupancy is not just base rent. In most retail leases it includes common area maintenance, property taxes and property insurance — the “triple net” charges — plus annual rent escalators. If the franchisor or an affiliate is your landlord, occupancy is also a related-party payment worth examining closely.

Royalty is the franchisor’s continuing fee. Whether it is charged on gross sales, net sales, gross profit or a per-transaction basis changes both its size and its behavior as the business grows.

Ad fund and local marketing are separate obligations in most systems: a contribution to a pooled national or regional fund, plus a required minimum spend in your own market. Some systems cap the combined total; others do not.

Other controllables absorbs everything else that runs through the store — utilities, small equipment, uniforms, cleaning, credit card processing, technology and point-of-sale fees, repairs and maintenance, general liability insurance.

Four-wall EBITDA is what the location produces before the cost of the owner’s own management, before financing, and before the corporate layer. It is the standard measure for comparing locations against each other, because it strips out choices that belong to the owner rather than the store.

General manager compensation is the line that separates an investment from a job. If you plan to run the store yourself, you may not write this check — but the labor still has economic value, and leaving it out overstates your return. Model it at what it would cost to replace you. If the resulting number is negative, you are buying employment, not an investment, and that is a legitimate choice as long as it is a conscious one.

Debt service is the loan payment. Note that it is not an expense in the accounting sense: the interest portion is deductible, the principal portion is not, but both leave your bank account. A ten-year SBA-style amortization at current rates typically consumes a meaningful share of manager-run EBITDA, and in the hypothetical above it consumes almost all of it.

Taxes come next and are not shown in the table because they depend entirely on your entity structure and personal situation. Most franchise units are held in pass-through entities, where profit is taxed on the owner’s personal return whether or not cash is distributed. Taxable income and cash flow diverge for two reasons that push in opposite directions: depreciation reduces taxable income without consuming cash, while principal repayment consumes cash without reducing taxable income.

Owner draw is what remains. It is also where a reserve for capital expenditure should come out. Equipment wears out, signage and interiors get refreshed on a franchisor-mandated schedule, and remodels are commonly required at renewal. A P&L that shows owner cash flow without a capex reserve is showing you a number you cannot actually keep.

What “four-wall EBITDA” leaves out

Four-wall EBITDA is a useful metric that is easy to over-trust, because the list of things it excludes is long.

It excludes interest, taxes, depreciation and amortization by definition. It usually excludes the owner’s or manager’s compensation, depending on who is presenting it — always ask. It excludes any above-store overhead: a multi-unit owner’s bookkeeper, area supervisor, office, accounting fees and insurance at the entity level. It excludes pre-opening and one-time costs. It excludes maintenance capital expenditure entirely, which is why a mature store with tired equipment can show attractive EBITDA right up to the year it needs $80,000 of replacements.

It also excludes rent whenever the property is owned by the operator or a related entity and no market rent is charged. This is one of the most common distortions in unit economics presented by sellers. If a resale package shows strong four-wall EBITDA and the seller owns the building, ask what happens when a market lease is imposed.

Why AUV headlines mislead

An AUV figure is a real, useful disclosure. It becomes misleading when it is used as a proxy for the three things it does not measure.

It says nothing about cost structure. Two systems with identical AUVs can produce very different owner income, because COGS percentages, labor intensity and total fee loads differ. Where an FDD’s Item 19 discloses sales only — which is common — the document is silent on every line below revenue. The 2026 Jiffy Lube FDD, Item 19, is an example: it reports an average of $1,109,719 and a median of $1,004,273 for the 1,732 franchised centers open all twelve months of 2025, and discloses no cost, expense, margin or profit information at all.

An average describes a distribution, not your store. The same Item 19 discloses that only 40.5 percent of those centers exceeded the average, and that quartile averages ran from $549,346 in the lowest quartile to $1,871,164 in the highest. Planning against the mean means planning against a number six in ten units did not reach.

Mature-system averages include mature units. New units generally open below system average and take years to close the gap, if they close it at all. Jiffy Lube’s 2026 Item 19 reports that the eight newly built franchised centers whose first full year was 2025 averaged $720,479 — about 35 percent below the system average. Your first three years are the ones that determine survival, and the headline average does not describe them.

Revenue means nothing without the investment that produced it. A million dollars of sales from a $250,000 build is a different business from a million dollars of sales from a $1.5 million build, even at identical margins. The 2026 Jiffy Lube FDD, Item 7, estimates $232,000 to $520,000 for a new freestanding center on a leased site, excluding any purchase of land or buildings — and separately estimates $300,000 to over $800,000 to acquire a site plus $700,000 to $1,200,000 to build one. Which route you take changes the return on the same sales line completely.

Sales definitions differ. “Gross sales,” “net sales” and “net adjusted sales” are not the same base, and systems use them inconsistently — sometimes within a single Item 19.

How to use these three numbers together

Start with the disclosed sales distribution rather than the average, and build your model on the second quartile, not the fourth. Apply cost percentages from an accountant who works with operators in that industry, not from the franchisor’s enthusiasm. Charge yourself market-rate management compensation even if you intend to work in the business. Subtract real debt service on the loan you will actually be offered, not a hypothetical one. Reserve for capital expenditure. Then look at what remains, and compare it to the cash you put in.

Do this three times — a downside case, a base case and an upside case — and treat the downside case as the one that decides whether you can afford the risk. Then have an accountant and a franchise attorney review the whole model against the current FDD before you commit.

This guide is informational only. The P&L above is hypothetical and illustrative. Nothing here is financial, tax, accounting or investment advice, or a projection of results. Consult qualified professionals.

Related

• How to Read a Franchise Disclosure Document (FDD)
• What Item 19 Actually Tells You
• How to Read Item 20 (Outlets and Franchisee Information)
• How Franchise Royalties and Fees Work