This is the big question, isn’t it? When considering opening an independent business or operating a franchise branded business, naturally, you want to know franchise success rates.
The difficulty with any statistic on the failure rate for franchises is the context surrounding it. There is no singular reason or statistic behind the success rate of franchises versus those of independent businesses. Businesses succeed or fail for all kinds of reasons:
- Location
- Market difficulties
- Industry/economic shifts
- Lack of funds
- Incomplete business plan/inability to scale
- Changes to public demand
- Many more seen and unforeseen reasons
That doesn’t mean we can’t dive into how franchises compare to independently operated businesses and see if there are advantages to owning one over the other. There’s valuable information available that’s less about the question, “What percentage of franchises fail?” and more about, “What type of investment is beneficial to me?”
Business Success Rates Over Time
The Bureau of Labor Statistics has been gathering data on the opening and operating of businesses since the early 1990s. According to their research1, new businesses experience:
- 80% rate of success in the first two years of operation
- 65% rate of success in the first five years of operation
- 45% rate of success in the first ten years of operation
Businesses open beyond 15 years make up 25% of all establishments that succeed. These statistics encompass brands in the private sector, regardless of industry.
There is no single “franchise failure rate” statistic. You may have conducted research and have come across a big boast that there is a 90-95% franchise success rate. Known as “The Statistic,” this number has been touted around the internet2 as a way to entice new entrepreneurs into investing in franchises over independent businesses. Not only is this number incorrect, it’s egregious.
First, the franchise industry is one of the most heavily regulated industries in the U.S. The only backup for this statistic is a flawed study in the late 1980s published by the Department of Commerce voluntarily filled out by franchisors who could pick and choose the questions they answered. Of course, they didn’t fully disclose what questions painted them in a negative light.
Second, the FTC heavily regulates the franchise industry3. Experts in the finance sector have been studying how franchising impacts consumers, investors, and the economy since its inception.
Third, details that greatly influence success and failure rates cannot be summarized by a single statistic. Attributes such as industry, franchise support, and franchisee matching and experience contribute significantly to how well individual franchise brands succeed (or don’t).
What Are 3 Factors Influencing Franchise Success Rates?
Franchising has experienced an uptick in investment in recent years. Why? Because franchise success rates, while not 95%, are nothing to sneeze at. There are things entrepreneurs can consider that make taking up a franchise brand’s mantle beneficial over going into business alone.
1. Business Industry
What industry a company is in has a major impact on franchise success rates. Belonging to the restaurant sector versus the senior home care industry can mean a difference in the failure rate of franchises involved.
Restaurants are a relatively stable industry but the flavors and trends have a high impact on what’s popular and what evolves in the market. Senior home care franchises rely on the stable healthcare industry, and the growing elderly population is trending toward higher demand for senior home care services.
Even sub-segments within the same industry can matter, such as a haircutting franchise compared with a waxing franchise. Haircut franchises can weather fluctuating economies because they provide a universal service people will always need, whereas luxury services like waxing are less likely to withstand difficult times.
2. Brand Reputation
A big enticement to franchising is brand recognition, which benefits franchisees and saves them from starting their new business from scratch.
When investing in a top-notch brand with a good reputation that sells a worthy product or service, it’s like starting a business with a handbook full of cheat codes. With the goal of a fast ROI, why wouldn’t you take the option that gets you earning money on a shorter timeline?
3. Franchisor Support
Higher franchise success rates are more common for brands that provide their franchise owners with comprehensive support.
After all, when franchisees have a better foundation of training, an understanding of the brand’s history and processes, and access to experts when they have questions, there’s less confusion and room to make mistakes.
A more confident franchise owner becomes a brand ambassador who advocates for the franchise in a way that grows customers and loyalty. This builds trust with the clientele and grows the brand’s reputation further. It can even lead to multi-unit ownership and more franchise locations. That’s a great statistic to indicate franchise success rates.
Factors Beyond Franchise Success Rates and Numbers
There’s more to business ownership and franchise success rates that contribute to a pleasant investment.
- Does the brand culture match your ideals as a business owner and a person?
- Do you enjoy the work and the people with whom you’re in contact?
- Is your day fulfilling?
If you’re a creative soul and your new franchise business has you up to your neck in spreadsheets, you might have an issue going to work every day. If you have a love for the kitchen, but your franchise has no kitchen in sight, it might not be the best fit.
All the franchise success rates in the world may not matter in these cases.
Don’t only rely on statistics when considering a franchise brand in which to invest. Look too at what will fulfill the creative, detailed, or people-centric side of your personality. Find your strengths and play to them.
That’s not to say you need first-hand experience in your new franchise investment industry. Many franchise systems will train you thoroughly on their processes and help you staff your location with the experienced personnel you need to operate smoothly.
You can find something you have a passion for, have always wanted to try, and are willing to learn from experts. The key is being willing to follow your franchise brand’s processes. That’s typically how franchise success rates are achieved.
At Garage Living, we specialize in garage renovations that welcome our clients home with warmth and style. We have large, protected territories just waiting for our next qualified franchise owner! Is that you? Contact us to get started!
