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Buying a Franchise

Franchise Success Rates

Choosing a franchise opportunity is a big decision, and big decisions are usually risky. So it’s natural to try to get some kind of idea of your chances of success before you take the plunge.

Natural, but not easy. Ask Google about the success rates for franchises and you can find number ranging from 95% to 18%. Ask knowledgeable people and you may get an honest, “It depends.”

Often, the best you can do is the turnover rate, which counts a successful franchise that was sold profitably when the owner retired exactly the same as a franchise that failed miserably. You can compare turnover rates from one franchise to another, so they can be useful, but they don’t exactly tell you your odds of success as a franchisee.

Here’s why it’s hard to get a clear answer:

  • There have been quite a few studies with different results over the years, but there have been no intensive studies of franchise success or failure rates in this century. That means that a lot of the strongest data is from a different economic situation, at the very least.
  • Many studies look only at a single industry. Information about, say, retail franchises doesn’t necessarily extrapolate to the entire franchise business world. In fact, franchising is now as varied as the business world as a whole. Data for one industry or one region isn’t enough.
  • The most reliable data, from the Small Business Administration or the U.S. Census, for example, often doesn’t sort businesses into franchises and independent businesses. Overall, about half of all small businesses, including franchises, make it through their fifth year.

Here’s a new question to think about: does it matter?

Look at some other success rates:

  • 74% of back surgeries fail.
  • 75% of high schoolers fail algebra exams.
  • 43% of marriages fail.

Now imagine deciding not to have surgery your doctor recommends, not to take exams, or not to get married because of those statistics.

Your chances of winning the lottery are something like 1 in 175 million. Those are odds to get discouraged over. The rest of the list? They don’t really tell you what your odds are.

Your chances of passing your algebra exams are better if you study, but the statistics don’t measure just the students who study for those exams.

It’s the same with businesses, including franchise businesses. Failure rates include people who are well prepared and people who are not, people who have plenty of capital and people who were just able to pull together the minimum, people who work hard and people who don’t.

They include great locations and tough locations, franchises with strong national marketing and those that leave marketing up to their franchisees, franchisees who follow the system and those that don’t.

Some franchises will fail, but you have a lot of control over whether or not your franchise in particular does well. Instead of focusing on theoretical failure rates, look at the franchisees who succeed and determine to do what they do.

You might also want to look at some who didn’t succeed, if you can, and see what happened. Then take all the steps you can to succeed.

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