On July 29, a walk-out strike was coordinated across the country by workers in the fast food industry in a protest for higher wages. The McDonald's chain garnered the most attention by the media as pundits debated the state of the economy with these strikers as fodder. At these walk-outs, workers were donning red clothing and banners declaring that they were “worth more” and demanded that they receive a “living wage.”
Cases like these are often interesting exercises in basic business and economics principles. In general, the two most basic items in cost accounting that will determine the price of a good: the cost of materials (beef prices, for example) and the cost of labor. All for-profit businesses are in existence for the sole purpose of at least reaching their break-even point — the point in which net operating profit is zero. Anything below this point is failure, and anything above is success.
So how does this apply to McDonald's in particular? The fast food industry operates on strict revenue models in order to reach their break-even point. Any business would have to when they’re selling most of their goods for a single dollar. Therefore, in order to keep their prices from fluctuating, fast food franchises alter the only price they can control: the cost of labor.
Let’s do a little basic math – with some generous rounding in favor of the strikers for the sake of argument – starting with the facts. According to Entrepreneur.com, there are a total of 12,605 franchises in the United States. In the last fiscal quarter, McDonald's reported around $1 billion in net operating income. In this theoretical scenario, each franchise makes about $80,000 in profit every quarter.