Franchise Genie Editorial Team
Key Takeaways
- There is no single reliable franchise success rate, because popular statistics use inconsistent definitions, old data, or industry-sponsored surveys.
- A unit that stays open under a new owner can be counted as a success even if the original owner lost money, which inflates many headline numbers.
- FDD Item 20 shows every brand's openings, transfers, terminations, non-renewals, reacquisitions, and closures for three years.
- Adding up a brand's transfers, terminations, non-renewals, reacquisitions, and closures, then dividing by units at the start of the year, gives a practical turnover rate.
- Calling former franchisees from the Item 20 contact list is the best way to learn why units changed hands or closed.
The honest answer about franchise success rate is that no single number deserves your trust. Popular statistics claiming that nearly all franchises survive, or that franchises fail far less often than independent businesses, rest on inconsistent definitions, dated surveys, and data that often counts a sold unit as a success. The data that actually helps you is brand-specific, and it is printed in every Franchise Disclosure Document under Item 20.
This article explains why the headline numbers are contested and shows you, step by step, how to calculate and interpret turnover for any brand you are considering. If you are new to the basics, start with our guide to what is a franchise.
Why the popular franchise success rate statistics are contested
You have probably seen confident claims in sales presentations, articles, or social posts. Before you rely on any of them, look at how they were produced.
Problem 1: Who collected the data
Some widely cited figures trace back to surveys conducted or funded by industry groups decades ago. Industry research has value, but a survey of franchisors, asking franchisors how their units are doing, has an obvious incentive problem. Some of these numbers have been repeated so often that their original source and method are hard to locate at all.
Problem 2: What counts as “success”
Many surveys measure whether a location is still open, not whether the original owner succeeded. Consider a hypothetical franchisee who loses most of her investment over 3 years and sells the unit at a steep discount. The location stays open under a new owner. In a location-based survey, that unit counts as a success. To the person who bought it first, it was a loss.
Problem 3: Closures are not always failures
The reverse is also true. An owner who retires and closes a profitable unit, or sells it for a gain, shows up as a closure or transfer. Raw closure counts don’t tell you why the unit closed.
Problem 4: Apples and oranges
Comparisons between franchise and independent business survival often use different datasets, time periods, and definitions of “business.” Government data on independent businesses typically counts every new establishment, including tiny side ventures with almost no capital, while franchise samples include buyers who had to meet capital requirements. That difference alone can skew any comparison.
Problem 5: Averages hide the spread
Even a perfectly measured industry-wide rate would mislead you. Results vary enormously by brand, industry, franchisor age, and management. Some academic research has found little or no survival advantage for franchised startups compared with similar independent ones, while industry sources argue the opposite. The disagreement itself is the lesson. An industry average says little about the brand in front of you.
Where the real data lives: FDD Item 20
The FTC Franchise Rule requires every franchisor to disclose its outlet history in Item 20 of the FDD. Our full guide to the franchise disclosure document covers every Item, but Item 20 is the one that turns the success-rate question into something you can measure.
Item 20 typically includes five tables covering the last three fiscal years:
| Table | What it shows |
|---|---|
| Table 1: Systemwide outlet summary | Total franchised and company-owned outlets at the start and end of each year |
| Table 2: Transfers | Units sold from one franchisee to another, by state |
| Table 3: Status of franchised outlets | Openings, terminations, non-renewals, reacquisitions by the franchisor, and units that ceased operations for other reasons |
| Table 4: Status of company-owned outlets | The same activity for units the franchisor runs itself |
| Table 5: Projected openings | Agreements signed but not yet opened, and expected new units in the coming year |
Item 20 also includes contact information for current franchisees and for franchisees who left the system during the most recent fiscal year. That second list is one of the most valuable pages in the entire document. It also discloses whether former franchisees have signed confidentiality clauses that may limit what they can tell you.
How to calculate a brand’s turnover rate
A simple, practical approach is to add up every event in which a franchised unit left its original owner or left the system, then divide by the number of franchised units at the start of the year.
Turnover rate = (transfers + terminations + non-renewals + reacquisitions + ceased operations) ÷ franchised units at start of year
A hypothetical worked example
Consider a hypothetical brand that began the year with 200 franchised units. Its Item 20 tables show:
| Event | Count |
|---|---|
| Transfers | 8 |
| Terminations | 4 |
| Non-renewals | 2 |
| Reacquired by franchisor | 3 |
| Ceased operations, other reasons | 5 |
| Total turnover events | 22 |
22 ÷ 200 = 11 percent turnover for that year. Repeat the calculation for all three years in the tables.
Some analysts separate transfers from the rest, because transfers can reflect healthy resales. Calculate it both ways. A brand with high transfers but few closures tells a different story from one with frequent terminations and units that simply went dark.
What to look for in the numbers
- The trend. Is turnover rising or falling across the three years?
- The mix. Terminations and “ceased operations” are usually more concerning than transfers.
- Reacquisitions. A franchisor buying back units can be strategic, or it can be a sign of struggling owners. Ask which.
- Openings versus signed agreements. Table 5 shows agreements signed but not yet opened. A large backlog of unopened units can mean buyers are stalling.
- Clusters. Transfers or closures concentrated in one state or region may point to a local problem, such as a weak market or an area developer issue.
- Company-owned units. Compare company-owned performance with franchised performance. If the franchisor is closing its own units, ask why.
There is no universal “good” turnover rate. Compare brands within the same industry, since business models in senior care and fast-casual food, for example, behave very differently.
Turn the numbers into conversations
Item 20 tells you what happened. Only people can tell you why. Use the contact lists to call:
- Former franchisees. Ask why they left, what they would do differently, and whether they would buy again.
- Owners who bought through a transfer. Ask what condition the unit was in and why the prior owner sold.
- Long-tenured owners. Ask how support, fees, and the franchisor’s priorities have changed.
- Recent openers. Ask how long the ramp-up actually took compared with what they were told.
The FTC’s consumer guide to buying a franchise recommends contacting former owners for exactly this reason. Their experience is the closest thing to real outcome data you will find.
Special cases to keep in mind
Young brands. An emerging franchise may have too few units and too little history for turnover math to mean much. Two closures in a 15-unit system is a large percentage but a small sample. Lean more heavily on franchisee conversations, the franchisor’s financial statements in Item 21, and the founders’ operating track record.
Rapid growth. A brand that opened many units recently may show low turnover simply because new units haven’t had time to struggle. Look at how its oldest units are doing.
Financial performance. Turnover tells you about stability, not profit. If the franchisor provides an Item 19 financial performance representation, read it alongside Item 20, footnotes included. No turnover figure tells you what you will earn.
Have a professional review your findings
Your turnover analysis is only one piece of due diligence. A franchise attorney can help you interpret Item 20 alongside litigation history in Item 3 and the termination provisions in the franchise agreement. A CPA can help you connect what you learn to realistic financial projections.
Make your decision on real data
An industry-wide franchise success rate will never settle your decision. A better question is what happened to owners in this specific system, and why. That question has an answer, and you can find it. For a broader look at the tradeoffs, read our guide to the pros and cons of owning a franchise.
Before you start pulling FDDs, narrow your search to industries that fit you. Take the free Franchise Genie assessment to see your owner archetype and three industry categories matched to your goals, budget, and risk appetite.
Frequently Asked Questions
What percentage of franchises fail?
There is no trustworthy single answer. Widely repeated figures come from surveys with different methods, definitions, and time periods, and some count a unit sold by a struggling owner as a success. Failure rates also vary enormously by brand and industry. Instead of relying on an industry-wide percentage, calculate the turnover rate for the specific brand you are considering using FDD Item 20.
Are franchises more successful than independent businesses?
The evidence is mixed and contested. Industry sources often claim franchises outperform independent startups, while some academic research has found little or no survival advantage once you account for factors like capital and industry. A franchise removes some startup risks and adds others, such as royalties and dependence on the franchisor. Brand-specific data matters far more than the general comparison.
What is a good franchise turnover rate?
There is no universal benchmark, because normal turnover differs by industry, brand age, and system size. Compare a brand's turnover with other brands in the same category, watch the trend across all three years in Item 20, and pay special attention to terminations and units that ceased operations. Then call former franchisees to learn the reasons behind the numbers.