Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Dynamic Pricing to Maximize Revenue
Transcript
- Lucas: So you walk into a fast-casual franchise at 11:45 AM on a Tuesday, and a chicken sandwich costs $8.50. You walk in again at 12:30 PM, same sandwich, now it's $10.25. Same kitchen, same ingredients, same staff. The only thing that changed was the clock. Luna: And if you're the franchisee, that extra $1.75 on a hundred sandwiches during lunch rush is real money. But do customers actually put up with that? Lucas: That is the central tension of dynamic pricing. And today I want to look at a franchisee who made it work — a multi-unit operator in the Midwest who runs a small chain of pizza franchises. Let's call him Mark. Luna: Is this the same Mark who ran that snowstorm promotion a few years back? Lucas: Same guy. Back in February 2024, a blizzard hit his region — about eighteen inches of snow over a weekend. Most restaurants in his area closed early or didn't open at all. Mark kept his stores open but raised prices by 20 percent on all delivery orders for the duration of the storm. Luna: And customers actually paid it? I feel like I'd be furious if I ordered a large pepperoni and it cost $24 instead of $20. Lucas: Some were. He got a few angry calls. But here's the thing — most customers understood that the drivers were risking dangerous roads, and they'd have tipped generously anyway. Mark framed it as a 'storm surcharge' and donated 5 percent of the incremental revenue to a local first responders fund. That softened the backlash considerably. Luna: Okay, so PR strategy matters. But the real question is: did the math work? How much extra revenue did he bring in? Lucas: His three stores combined did about $47,000 in sales that weekend, compared to a typical weekend of around $38,000. That's roughly 24 percent higher. But he also had higher labor costs because he paid drivers double time. Net profit still rose about 18 percent across the three units. Luna: So the snowstorm was a one-off event. But what about everyday dynamic pricing? You know, like how Uber charges more at 2 AM on New Year's Eve. Can a franchise do that without alienating regulars? Lucas: That's where it gets interesting. A few franchise systems are starting to experiment with what I'd call 'soft dynamic pricing' — small adjustments based on time of day or day of week, not event-driven surges. I spoke with a franchise consultant who works with a burger chain testing lunch and dinner pricing tiers. Luna: And how small are we talking? A 5 percent bump? Lucas: Even smaller. Think 3 to 7 percent, so a $10 combo becomes $10.50 or $10.70. The idea is to capture some of the value from peak demand without triggering a psychological 'that's unfair' reaction. The consultant told me the test stores saw a 4.2 percent revenue lift over six months with no significant drop in customer visits. Luna: But what about the operational side? Most franchise POS systems aren't built for real-time price changes. Are franchisees having to build custom integrations? Lucas: That's the biggest barrier right now. A typical franchise POS — think TouchBistro, Toast, or a proprietary system — can handle manual price overrides, but automated dynamic pricing requires a middleware layer. Some franchisees are using third-party tools like Delaget or Crunchtime that sit on top of the POS and adjust prices based on rules the owner sets. Luna: So you'd program it to say: if the time is between 11:30 AM and 1:30 PM, increase price by 5 percent on all entree items? Lucas: Exactly. Or more sophisticated: if the number of orders in the last 30 minutes exceeds a threshold, raise prices by 3 percent to smooth demand and reduce wait times. Some franchisees are even experimenting with weather-based triggers — if the forecast shows rain, they lower prices on delivery to encourage orders, because they know dine-in traffic will drop. Luna: That's actually clever. You're using pricing to manage operations, not just maximize revenue. Lucas: Right. And that's the framing that makes dynamic pricing more palatable to franchisees who worry about customer backlash. You're not gouging — you're smoothing demand so you can serve everyone better. During peak times, a small price increase discourages the marginal customer who might otherwise wait 25 minutes for a table. That reduces stress on the kitchen and improves the experience for the customers who do come. Luna: I wonder if this works better in some franchise verticals than others. Pizza and burgers you can kind of see it. But what about service-based franchises like cleaning or lawn care? Lucas: Those are actually harder because the pricing is usually quoted per job, not per unit. But I've heard of some home service franchises adding a 'peak season surcharge' — like $20 extra for a lawn mow during the fastest growth weeks in May. They just frame it as a seasonal adjustment rather than a dynamic one. Luna: Let's talk about the customer's point of view for a second. I was at a conference last year and a speaker showed data that 60 percent of consumers say they'd stop going to a restaurant that uses surge pricing. But that same study found that when the pricing was framed as a 'discount' during off-peak times, acceptance shot up to 80 percent. Lucas: That is the single most important insight. Don't call it surge pricing. Call it 'early bird pricing' or 'happy hour pricing' or 'quiet hour discount.' The psychology of a discount is completely different from a surcharge, even if the net effect on your wallet is identical. A $2 discount at 2 PM and a $2 surcharge at 7 PM both result in the same price gap, but customers love one and hate the other. Luna: Right, because the anchor price matters. If you set the base price at the peak level and then discount during slow times, customers feel like they're winning. If you set the base at the low level and add surcharges, they feel like they're being punished. Lucas: Exactly. So a smart franchisee who wants to implement dynamic pricing should start by establishing a baseline price that covers their costs and a reasonable margin, then offer discounts during historically slow periods. That way, the peak price is never actually higher than what customers perceive as normal — they just get a deal when they come in at 2 PM. Luna: And you can test this without any complicated tech. Just put up a chalkboard sign that says 'Lunch special: $2 off all sandwiches between 2 and 4 PM.' That's dynamic pricing with a marker. Lucas: It really is. And a bunch of franchisees are already doing that without thinking of it as dynamic pricing. What I'm describing is just taking that instinct and making it systematic, data-driven. You look at your transaction data, find the 10 percent of hours that generate 30 percent of your revenue, and you see if you can shift a little of that volume to slower hours. Luna: Speaking of which — if these conversations have moved your work forward in some small way, maybe helped you think differently about a pricing strategy or an operational tweak, it's worth mentioning that listener support is what keeps this show ad-free and independent. There's no sponsor pressure, no affiliate links. Just us talking through ideas that actually work for franchisees. Lucas: Yeah, and it's a small gesture that goes a long way. If you've gotten value from episodes like this — whether it's the snowstorm story or the pricing psychology breakdown — you can head over to buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. It literally costs the same as a coffee, and it helps us keep the library growing without any corporate strings attached. Luna: Right. And we're not going to interrupt the flow to ask again. So back to the pricing — let's talk about a franchisee who's been doing this for a year now and has some hard numbers. Lucas: Let's go to a case I found from a QSR franchise in the Southeast. This operator runs five chicken sandwich stores. He implemented a simple time-of-day pricing model: all sandwiches are $6.99 from 11 AM to 2 PM, then drop to $5.49 from 2 to 5 PM, then back to $6.99 for dinner rush. He also offers a 'late night' price of $5.99 after 9 PM. Luna: And what happened to his overall revenue? Lucas: Over 12 months, same-store sales increased 6.8 percent compared to the previous year. But more importantly, his labor cost as a percentage of sales dropped by 1.2 percentage points. Because the discount period smoothed out the afternoon lull, he could schedule fewer staff during that time and still handle the volume. His kitchen wasn't overwhelmed at lunch, and it wasn't dead at 3 PM. Luna: So the pricing change actually improved operations. That's the kind of win that makes a franchisee stick with it even if some customers grumble. Lucas: And the grumbling was minimal. He surveyed customers after three months, and 72 percent said they either didn't notice the price changes or viewed them positively as a way to save money. Only 11 percent said they were annoyed. And among that 11 percent, most were regulars who came during peak hours and saw the higher price. But they also acknowledged the food was still a good value. Luna: I want to push back a little, though. Doesn't this create a two-tier customer experience? The people who have flexible schedules get cheaper food, and the people who can only come at lunch pay more. That feels a little regressive. Lucas: It does, and that's a valid criticism. But you could argue that the current system — where everyone pays the same price regardless of demand — actually subsidizes peak-hour customers at the expense of off-peak customers. The fixed price has to cover the cost of the busiest hours, so off-peak customers are effectively paying for the labor and overhead that peak customers require. Dynamic pricing makes the cost allocation more accurate. Luna: That's a fair point. And it's not like franchisees are the only ones doing this. Hotels, airlines, and ride-sharing have used it for decades. The difference is, those industries trained us to expect it. Restaurants haven't. Lucas: But they're starting to. I think in the next five years, we'll see dynamic pricing become standard in fast-casual and quick-service franchises, simply because the technology is getting cheaper and the competitive pressure will force it. If your competitor across the street offers a $2 discount at 2 PM and you don't, you'll lose the price-sensitive afternoon customer. Luna: So what's your advice to a franchisee listening right now who wants to try this but is nervous? Lucas: Start with a discount program, not a surcharge. Pick your slowest two-hour window and offer a 10 percent discount on one or two items. Run it for a month, track the numbers — transactions, average check, customer feedback. If it works, expand. If it doesn't, you haven't alienated anyone because discounts are always welcome. Then, once you have data, you can think about raising the base price and using discounts more strategically. Luna: And what about the technology side? Should they invest in a dynamic pricing software platform? Lucas: Not yet. For a single-unit franchisee or even a small multi-unit operator, the cost of a middleware platform — often $200 to $500 a month — probably isn't justified unless you have very high transaction volumes. Start with manual price changes in your POS, or use a simple scheduling tool that changes prices at set times. Once you have proof of concept, then consider automation. Luna: So the bottom line: dynamic pricing is real, it works, but the execution has to be thoughtful — focus on discounts, frame it as a win for customers, and use the data to refine. Lucas: Exactly. The franchisees who get this right aren't the ones who treat pricing as a static number on a menu board. They treat it as a lever they can pull to manage demand, improve operations, and ultimately build a more profitable business. And in a world where margins are getting tighter, that lever is becoming essential. Luna: Alright, I'm going to try that $2 off experiment in my head for my local coffee shop franchise. See if it works in theory. Lucas: Let me know what you find. I'd bet the data will surprise you.