One of the most common questions prospective franchisees ask is "what percentage of franchises fail?" The answer is more nuanced than the marketing materials suggest. While the franchise industry often claims failure rates below 5%, the reality depends heavily on how you define failure and which data you examine.
Where the Data Comes From
The best source for franchise failure data is Item 20 of the FDD, which tracks unit openings, closings, and transfers over a three-year period. A "closure" in Item 20 means a franchise unit stopped operating — whether the franchisee went bankrupt, chose not to renew, or was terminated by the franchisor. Transfers (resales to new owners) are tracked separately.
What the Numbers Actually Show
Across the franchise brands tracked by Franchise Breakdown, annual closure rates typically range from 1% to 8% of operating units. But averages mask significant variation:
- Established QSR brands (fast food) tend to have closure rates under 3%, partly because of strong brand recognition and proven operating systems.
- Fitness and service-based franchises often show higher churn, with some brands experiencing 5-10% annual closures.
- Newer or rapidly growing systems can have misleading closure rates — a brand with 20 units that closes 2 has a 10% rate, while a brand with 2,000 units closing 40 sits at just 2%.
How to Use This Data
Rather than looking at industry-wide averages, compare closure rates within a specific category. A home services franchise with a 2% annual closure rate is performing better than category peers averaging 4%. Franchise Breakdown calculates closure rates for every brand from the raw Item 20 data and shows how each brand compares to its category average.
See our full franchise failure rates by industry analysis with data from hundreds of brands, or browse franchise brands to see closure rates, unit growth trends, and other risk indicators side by side.