Edith Wiseman, president of FRANdata, stated that the U.S. economy has “been a wild ride, and it’s going to continue to be a wild ride, but franchising will be a stabilizing force.” Despite these uncertain economic times, franchising is expected to grow, offering opportunities for aspiring entrepreneurs.
If you’re an entrepreneur looking for an opportunity, understanding the outlook for that business is key.
Let’s explore franchise success rates, compare them to independent businesses, and break down the factors influencing franchise outcomes.
Overall Business Success Rates
Data collected on business success rates highlights the difficulties of entrepreneurship. According to 2024 data, the reality is:
- 20.4% of businesses fail within their first year.
- 49.4% of businesses do not survive beyond five years.
- 65.3% of businesses close within ten years.
These numbers underscore the risks of starting a business, especially for independent entrepreneurs who lack the resources and brand recognition that franchises often provide.
However, businesses that make it past the 15-year mark show that persistence and a solid business model can lead to long-term success, with 25% of all businesses surviving beyond 15 years.
Franchise Success Rates
The franchise industry is thriving, with the overall number of franchise establishments predicted to increase by more than 15,000 units in 2024, to 821,000 units in the U.S. This growth is an indicator of continued confidence in the franchising model.
Most importantly, franchises have a much better success rate than independent businesses. Over five years, franchise success statistics look much better than those for independent small businesses:
- Only about 4% of franchises fail within the first five years; but
- Nearly 50% of all startups fail in the same timeframe.
That was not a typo. It is estimated that half of all small businesses close their doors before they reach the five-year mark, but nearly 94% of all franchises are still open after five years.
With that in mind, let’s look a little closer.
When considering a franchise investment, it's important to focus on the performance of specific franchises rather than relying on an overall franchise success rate.
A key resource for this is the franchise disclosure document (FDD), which provides detailed insights into a franchise's operations. When researching a franchise opportunity, make sure you review the entire FDD in detail, and note the following two areas for a deeper understanding of the franchise opportunity:
Average Sales Per Unit (Item 19): Item 19 gives you a snapshot of the brand's past financial performance. However, remember that this data is not a guarantee of future earnings, but it does help gauge the potential profitability of the franchise business.
Number of Units (Item 20). This section shows the franchise's growth by tracking how many locations have opened or closed in the last three years. It also reveals how new franchise owners have fared recently. Be sure to ask the franchisor why any locations were closed, as this can offer valuable context.
How to Identify the Most Successful Franchises
A successful track record is a sign that a franchise is operating with a proven business model. Selecting a successful franchise helps ensure higher potential for profitability and long-term stability.
Franchise Industry
Franchise success can look different across various industries, and it's important to know where the strongest opportunities lie.
Some of the most successful franchises are in sectors that cater to essential goods and services. They tend to provide goods and services that are always in demand, as opposed to “want-to-have” industries, which may be more susceptible to economic downturns.
The home services sector — which includes services like pest control, cleaning, and property management — has become one of the most recession-resilient franchise industries. In 2022, home services franchises ranked as the second-most represented industry in the Franchise Direct top 100 Franchises Report.
Home services franchises can often initially be operated as home-based franchises, which can significantly lower the entry cost and monthly operating expenses. It’s probably not just a coincidence that 70% of all home-based businesses are still considered "successful" three years after founding.
Franchise Territory
The location and territory of a franchise business significantly impacts its success. Growth trends in the U.S. franchise market show that certain regions, particularly in the Southeast and Southwest, are poised for greater expansion.
The top 10 states for franchise growth include:
- Florida
- Georgia
- North Carolina
- South Carolina
- Tennessee
- Maryland
- Pennsylvania
- Arizona
- Colorado
- Virginia
Fortunately, opportunity abounds nationwide. While these are not the only states for business growth, these regions do offer particularly strong economic environments, growing populations, and favorable business climates that attract both franchisors and franchisees.
Franchisor Support
One of the most significant advantages of franchising is the support provided by the franchisor. A successful franchise relies not only on the franchise owner's effort and expertise but also on the systems and support offered by the franchisor.
Franchise owners are often provided with comprehensive training programs, marketing strategies, operational guidance, and ongoing business assistance, which can dramatically improve their chances of success. The level of franchisor support can vary between brands, so it’s essential for potential franchise owners to research how much training, guidance, and assistance they can expect.
Some franchisors offer hands-on support in every phase of the business, from site selection to staff training, while others may offer limited guidance.
Choosing a franchise with a robust support system can be a key factor in ensuring long-term success.
Franchise Brand Recognition
Brand recognition is one of the biggest draws of franchising.
Starting a new business comes with the challenge of building brand awareness and trust from scratch. In contrast, franchising allows entrepreneurs to benefit from an established brand with a loyal customer base.
This head start might lead to quicker returns on investment, making franchising an attractive option for entrepreneurs who want to avoid the long, costly process of building a brand from the ground up.
Why Neighborly® is a Top Choice for Franchise Success
A prime example of franchise success is Neighborly®, a leader in the home services franchise industry.
Neighborly’s franchise owners benefit from a robust support system, strong brand recognition, and a business model that serves essential, recession-resistant markets. This network of franchise owners is positioned for success, particularly in high-demand sectors. Hear from a ShelfGenie® Franchise Owner, Dave Holliday, on the support he has received since joining the Neighborly & ShelfGenie network:
Curious if franchising is right for you? Take our quiz to discover the best franchise opportunities for your goals.
