Tiered Pricing: When “Choice” in Your Franchise Isn’t Really Choice
When you own a foodservice franchise, menu pricing isn’t always truly in your control. In some systems, the franchisor sets prices for every location. In others, franchisees can choose from a “tiered” pricing grid. On paper, that might sound empowering, until you run the numbers.
Let’s break down a real-world example from I Heart Mac & Cheese and show why this system often works in the franchisor’s favor, not yours. Even if you’re considering another food brand, the math here is worth learning.
What Tiered Pricing Looks Like
Under I Heart Mac & Cheese’s pricing model from January 2024, the franchisor provides a menu with seven price tiers (tier 1 is not included; tiers are listed from tier 2 to tier 8).
Franchisees “choose” a tier, sometimes with “guidance” from corporate.
In some cases, corporate simply decides for them.
The prices step down from Tier 8 (highest) to Tier 2 (lowest).
The kicker? Your cost of goods sold (COGS) stays the same no matter what tier you choose. Drop the retail price, and COGS as a percentage of sales climbs, fast.
The Margin Math in Real Terms
Here’s why lowering your tier is so costly:
Lower price = less gross profit dollars per item
Same ingredient cost = higher COGS %
You must sell significantly more units just to break even
Example 1:
At Tier 8, a core menu item sells for $15.95. Let’s say your COGS is $4.79 (about 30% of sales). If you drop to Tier 6, where that item is $13.49, your gross profit per item falls from $11.16 to $9.44. That means you’d have to sell roughly 28% more items just to make the same total gross profit.
Example 2:
If you go from Tier 8 at $15.95 down to Tier 4 at $11.45, with the same $4.79 COGS, your gross profit per item drops from $11.16 to $6.66. Now you’d need about 68% more items sold to keep your gross profit dollars level.
Those percentage jumps are not easy to achieve, especially in a market that already thinks your prices are high or your product is underwhelming.
Why the Franchisor Benefits
Supply-side profits don’t care about your retail price. Every case of product you buy generates margin for the franchisor whether you sell it at $11 or $15.
They can claim “value creation” for consumers without risking their own economics.
It’s a PR shield. If reviews say you’re overpriced, they can point to lower tiers as the “solution,” at your expense.
What the Consumers Think
Public reviews for I Heart Mac & Cheese show a consistent pattern:
“Overpriced for what you get”
“Small portions”
“Cheese sauce isn’t good”
These complaints appear at all locations, regardless of pricing tier in use by the franchisee. Meaning price changes alone haven’t fixed the perceived value problem. That’s the big lesson: If the core product experience isn’t strong, discounting just trades margin for a temporary trial bump.
What to Ask Before You Sign with Any Food Franchise
Who sets menu prices? You, corporate, or a hybrid like tiered pricing?
Can corporate force you into a specific price tier?
How are required supplier costs calculated? Are they fixed or tied to menu price?
If menu prices drop, does the franchisor’s supply-side revenue drop too?
What’s the historic unit sales lift when prices change in your brand?
The Bottom Line
Tiered pricing can look like flexibility, but in practice it’s often a franchisor risk transfer. Unless your product has strong repeat appeal and your market can sustain the required traffic lift, lower tiers mean more work for less money, while the franchisor’s economics stay intact.
💡 Franchise Reality Check™ Tip:
Before you agree to any price drop; whether it’s a tier change, seasonal promotion, or “value” strategy; calculate the exact number of extra units you’d need to sell to make the same gross profit dollars. If that number looks unrealistic based on your past traffic, you are being asked to give up profit, not create value.
The tiered pricing information analyzed in this article was provided to Franchise Reality Check™ by an anonymous I Heart Mac & Cheese franchisee who requested clarity on the franchisor’s pricing model. Franchise Reality Check™ did not create, alter, or verify the original document with the franchisor; all analysis is based solely on the information provided and publicly available industry standards for cost-of-goods-sold assumptions. The examples and calculations herein are for educational purposes only and should not be relied upon as legal, financial, or investment advice. Prospective or current franchisees should seek independent legal and financial counsel before making any business decisions.
