Franchise Statistics Debunked Again!
No doubt that a good franchise systems can reduce risk, speed up success, and help franchisees avoid the mistakes of others. But not all franchises are created equal. That's what Jean Samper writes in an enlightened post in Franchise Key International, called The myth of guaranteed success in franchising. In summary, Jean says, in franchising, no method, or magic formula can guarantee success.
If franchising means uniting a concept that has been successful and a dynamic and brave franchisee that has the right profile for the job and who has the right financing, the chances of success can be incredibly high.
Here is the danger: A bad business model will not be saved by franchising it.
Let’s stop wondering if franchising is a good formula. Let’s concentrate on whether the business model is sound, if the franchisor is fair and legitimate, and if the franchisee has the right profile.
There are a number of brokers web sites out there that are publishing statistics about the success of franchising, what those brokers should be touting is the success of the business model they are representing.
Here are are some of the bogus statistics out there on franchise broker web sites: I have never been able to verify any of these bogus claims.
- A 1999 Study by the United States Chamber of Commerce found that 86% of franchises opened within the last 5 years were still under the same ownership and 97% of them were still open for business.
- A U.S. department of commerce study conducted from 1971 to 1997 showed that during that time less than 5% franchise businesses were closed each year. Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non-franchised businesses closed within the first 6 years of their existence due to failure, bankruptcy, etc.
- In 2000, the median gross annual income, before taxes, of franchisees was in the $75,000 to $124,000 range, with over 30% of franchisees earning over $150,000 per year.
- US Department of Commerce/Industry and Trade Administration and Future Small Business in America Study says Franchises have a 90% success rate.
- Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non franchised businesses closed within the first 6 years of their existence due to failure or bankruptcy.
- http://www.franchisenext.com/inner/faq.htm
- http://www.gbizchoice.com/page/page/2765698.htm
- http://www.smartchoicefinancial.net/franchise/statistics.html
- http://dearbornwest.com/_wsn/page4.html
- http://www.stonebridgebusinessadvisors.com/franchising.html
- http://freefranchiseconsultant.net/FRANCHISE_STATISTICS.html
- http://franchise-sales-net.com/franchise_facts_and_statistics.asp
- http://www.careerpotential.com.yourtempsite.com/articles/franchising-information.html
- http://www.franchiseindustries.com/franchise_industries_franchises_for_sale_statistics.html
- Franchise topic:
From Bob Purvin's book "The Franchise Fraud"
Page 57:
The US Department of Commerce published a report in 1986 (over 20 years ago): "Franchising in the Economy 1984-1986." The publication reported the findings and conclusions of a survey conducted by the Department of Commerce (DOC) on the growth of franchising, and the success rates of franchisees.
First of all it was a report not a study, also it was a voluntary survey, mostly established franchise systems responded, what incentive would there be for a non-performing franchise system to air its failures. Secondly the data was not audited, it was compiled. Finally, one of the deceptive facts was that the survey failed to define what a failure was.
Purvin has this to say about franchise failure; "When franchisees fail, the franchisor rarely shares their failure. Rather, the franchise goes back into inventory to be resold again and again."
The IFA sent a letter to its members in 2004 and asked them to stop using the DOC statistics. It calimed the statistics were out dated and the survey raised questions as to realability. In 2005 the IFA published a report by Price Waterhouse Coopers titled "Franchising in the Economy", that study contains considerable statistics about franchisings effect on the economy, but does not go into statistics concerning success or failure of franchisees.
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
Director & Clerk, Dunkin Donuts Independent Franchise Owners (DDIFO) Board of Directors
Jim Coen
877-469-3002
Blog: Lets Talk Franchising
Executive Director of the New England Franchise Association
President, Dunkin Donuts Independent Franchise Owners (DDIFO, Inc.)
"If your considering investing in a business, one of your safest bets is a franchise. Franchises are a popular way to launch a new company because they are highly likely to succeed. According to the U.S. Department of commerce, 95% of franchises are still in business after 5 years. The likelihood a self-launched business will still be in business after 5 years is 47%. Buying a franchise more than doubles your chance to survive as a business owner. And, if you pick the right franchise, your chances can improve beyond 95%."
Source: U.S. Dept. of Commerce
I found it on franchiseesource.com
I cannot find anything on the US Dept of Commerce website.
Look at our article Beguling Heresy: Regulating the Franchise Relationship, the section on "Franchise Success/Failure Rates".
The short answer is no, it is not true. A longer answer with discussion of some of the studies debunking this myth is provided in the article.
The article is online (click here) or your library can get it for you, the citation is: 109 Penn State L.R. 105 (2004).
While bogus statistics are still widely quoted in the UK, here in the US these claims are nowadays mostly made verbally and not in written literature.
Franchise salespeople and industry lobbyists claim that franchising is inherently less risky; indeed most of them who quote numbers do quote the "95% success" number. Apart from being untrue, this encourages a complacent attitude on the part of a prospective purchaser, which is certainly in the best interest of the franchise industry but not in your best interest.
Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
The franchise industry as a whole is in the toliet. A lot of the food franchises are being resold at a fraction of what they cost to develop. Franchise sales have completely dried up. As long as were in a credit crunch franchising will continue to take a beating. If anyone asked me my opinion about getting into a franchise today, I would tell them to go get their heads examined. Between the saturation and everything else going on I can guarantee a 95% faliure rate.
This is what the International Franchise Association's president and CEO had to say about the state of the industry last week in a message to the House of Representatives as they were considering passing a bailout bill for Wall Street financial firms: