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How a franchisor and a franchisee split the money

You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.

Case timer

00:00

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

An illustrative franchised burger restaurant in the US sells USD 3,000 thousand a year. The franchisee pays a 5 percent royalty and 4 percent into the brand marketing fund. Before these fees, the restaurant earns an 18 percent margin. What does the franchisee keep, and what does a franchisor with 1,000 such restaurants earn in royalties?

2. Answers to clarifying questions

This case has no scripted clarifying answers. Answer from the prompt, and say "assume what you think is reasonable" if the prompt does not cover it.

3. A model structure

Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.

Split restaurant profit between franchisee and franchisor
- Franchisee profit = restaurant margin minus royalty minus marketing fund
- Franchisor royalty income = royalty rate x sales x number of restaurants

4. The working, step by step

Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.

Step 1: Profit before fees
What a strong candidate does: 18 percent of USD 3,000 thousand.
Restaurant profit before fees (USD thousands): 3,000 × 0.18 = 540
Step 2: Franchisee keeps
What a strong candidate does: Minus the 5 percent royalty and the 4 percent marketing fund.
Franchisee profit (USD thousands): 540 - 3,000 × 0.05 - 3,000 × 0.04 = 270
Step 3: Franchisor royalties
What a strong candidate does: USD 150 thousand of royalty from each of 1,000 restaurants, in USD millions.
Franchisor royalty income (USD millions): 3,000 × 0.05 × 1,000 ÷ 1,000 = 150

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

The franchisor should keep growing through franchising, because it earns about USD 150 million a year in royalties from 1,000 restaurants with little capital of its own. First, each restaurant pays a 5 percent royalty, worth USD 150 thousand a year. Second, the franchisee keeps USD 270 thousand, about 9 percent of sales, half of the USD 540 thousand restaurant profit. The risk is that weak franchisee profits slow new openings, since the franchisor's growth depends on franchisees staying profitable. As a next step, track franchisee margins every quarter.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.