What Is the Failure Rate For Franchises In 2025?

If you’re thinking about investing in a franchise, one question is likely at the forefront of your mind: What are my chances of failure?

Purchasing a franchise can cost hundreds of thousands of dollars. So, if you’re going to risk that much capital, you need to know your chances of achieving your business goals.

Finding precise data on failure rates for franchises can be challenging, and many franchisors don’t release such data for understandable reasons, but it certainly isn’t impossible!

In this article, I break down the average failure rates for franchises and examine the factors that contribute to success across several franchise industries. I’ll also discuss some key factors that impact your chances of success as a franchisee.

Key Takeaways

• Franchise failure rates vary widely, and success is not guaranteed despite the structured nature of franchising.
• Several factors contribute to franchise failures, including lack of sufficient funding, poor location choice, and failure to follow the franchisor’s system.
• The strength of the franchisor’s support system can significantly impact the success or failure of a franchise.
• Industries with high competition or shifting consumer preferences may have higher franchise failure rates.

What Is The Franchise Failure Rate In 2025?

Gauging the exact average failure rate for a franchise is incredibly challenging. There are many different franchise industries, each with its own benefits and failure rates.

Most experts place the franchise failure rate between 20% and 50%, meaning that around 5 to 8 of every 10 franchisees will be successful. These are not bad odds if you ask me!

All investments come with their risks, but franchises tend to have a much higher chance of surviving beyond the first-year and fifth-year mark anniversaries than independently operated businesses. For example, startups have a much higher rate of failure at around 90%!

As you might imagine, the failure rates for a restaurant franchise and a home services franchise are bound to be very different. Let’s take a look at the failure rates of various franchise industries.

Failure Rates By Industry: What Types of Franchises Are Riskier?

One of the most significant factors that can impact your success as a franchisee is the industry you invest in. Here are some of the biggest franchise sectors and their failure rates to help you with your research.

Restaurants 

The restaurant industry gets a bad rep thanks to a common myth that around 90% of them fail within their first year. However, the data suggests that this is simply not true.

A comprehensive UC Berkeley study in 2014 showed that over a 20-year period, only 13%.of restaurants failed in their first year. Better still, 51% of restaurants remained in business for more than five years.

Since 2014, the USA’s full-service restaurant franchise industry has experienced continued growth. Its economic output grew every year from 2014 until taking a hit in 2020 during the pandemic. However, it surpassed pre-pandemic figures in 2023 and continued to grow in 2024, generating more than 80 billion dollars for the first time.

Similarly, the fast food industry has enjoyed continued growth since 2014, besides a temporary drop in 2020. Overall, this sector generated over $387 billion in 2023.

So, the next time somebody tells you investing in a restaurant franchise is a fool’s game, you can tell them the data suggests otherwise.

Coffee Shops and Cafés

Coffee culture is now a mainstay in many parts of the world, with Starbucks currently being the undisputed global leader of the coffee shop industry. While Starbucks doesn’t offer franchising opportunities, there’s still plenty of room for franchisees to capitalize on the growing market.

A recent study found that nearly 75% of Americans drink coffee on a daily basis. So, it seems obvious that there is a significant potential for success for coffee franchises. According to some estimates, the average failure rate for a coffee shop in the first year is around 30%. Keep in mind that this figure accounts for all coffee shops and cafés, not just franchises. Since franchises tend to have better odds than independently run businesses, the failure rate for franchise coffee shops is likely lower.

In 2024, the market size of the USA’s coffee and snack shops industry surpassed $68 billion. With at least a 70% chance of surviving beyond the first year, investing in a coffee franchise such as Dunkin’ Donuts, The Coffee Bean, or Scooter’s Coffee could be an extremely lucrative venture.

Retail

Many investors recommend avoiding investing in physical retail stores as online shopping has become increasingly popular. While I’m not denying that it can be a risky business, I also think there are some great opportunities that these inventors fail to see.

Last year, the number of retail store openings was set to outpace closures by 20%. Moreover, shopping center vacancy rates fell to just 5.3%, the lowest in 15 years.

If you can innovate and get creative, a physical store gives you the opportunity to provide value to your customers in ways the online experience can’t offer. 

Plus, depending on your franchisor, you might be able to generate revenue from online sales as well as your physical store. After all, in reality, most people shop both online and at stores. And according to an International Council of Shopping Centers survey, the majority of people across all age groups would like to see the US’s traditional shopping malls revived.

Home Services 

Many prospective franchisees have their sights set on the home services industry, and for good reason. The sector has been one of the most resilient throughout the past few years, and it has continued to achieve impressive growth. According to a recent study, the home services industry accounted for more business openings than any other industry in the USA in 2023.

This boom seems to be a nationwide trend. As the data demonstrates, there were over 26,000 new home service openings in California alone. However, it was the least populous state that saw the highest overall growth — South Dakota’s number of home services businesses increased by 39%.

Metro areas are also seeing an influx of these companies. For example, Kansas City saw an increase of 22%, while Cincinnati’s increased by 23%.

If the home services industry maintains growth at its current pace, now might be the perfect opportunity to invest in a franchise like Glass Doctor or Closet Factory before the market becomes too saturated.

Health and Wellness (Gyms)

With the modern emphasis on physical and mental health, you might like the idea of investing in a gym franchise – especially if you have a passion for exercising. However, while I never simply say steer clear, I do recommend proceeding with caution when it comes to the health and wellness franchise industry.

According to the International Health, Racquet & Sportsclub Association (IHRSA), around 81% of gyms close down within the first year. Many gyms, despite their best efforts, fail to retain enough members to remain profitable. And note – this is all gyms, not franchise gyms. Franchises have a much lower failure rate than other small businesses.

I’m not suggesting that you should turn away from your dream if you’re passionate about operating a gym. Franchises like UFC Gym and Snap Fitness can be well worthwhile investments. I just recommend doing a lot of research and making sure you’re following your head as much as your heart.

Factors That Contribute to a Franchise’s Success or Failure

When it really comes down to it, it’s possible to find success as a franchise owner regardless of which industry you choose, even if the competition is fiercer in some than others. The key is to be aware of and prepared for as many obstacles as possible. If you arm yourself with the right skills and properly prepare yourself for franchise ownership, you’ll have a much higher chance of success.

Here are the factors that play a major role in your success as a franchise owner.

Brand Recognition

As you might expect, brand recognition can contribute a lot to the success -– or downfall in some cases — of a franchise. I mentioned earlier that the average failure rate for a franchise lies somewhere between 20% and 50%. But big brands often perform much better than that. For example, some sources suggest the failure rate for a KFC franchise is 13%. And in some years, Whataburger and Taco Bell boasted failure rates that were as low as 0%.

That’s not to suggest that only well-known brands can be successful as franchises. It’s also entirely possible to purchase a franchise of an up-and-coming brand for a bargain and make a huge return on investment. 

Location

While brand recognition is certainly an important factor, you shouldn’t solely rely on it to drive customers to your location. You need to actually be in the right location for customers to find you. Think of it this way: A franchise tucked away in an industrial park with limited visibility and no foot traffic will struggle to attract customers. On the other hand, a location in a bustling downtown area near offices and public transit will naturally draw in a steady stream of customers.

The optimal location for your franchise will heavily depend on your specific industry. For example, a home services franchise in areas where people have limited access to tradespeople or retail stores.

I’ve found that one industry where location is extremely important is gas station franchises. A station positioned along a busy highway or at a high-traffic intersection will see far more customers than one on a quiet side street.

Economic Conditions

Consumer spending habits, access to capital, labor market conditions, market demand, fluctuations, and inflation can all affect your business for better or worse. Your chances of success (or failure) as a franchisee largely depend on how both you and your franchisor can adapt to these conditions. Before investing in any business, do your homework to find out what the projections and forecasts are for the industry and company.

As the data I’ve provided above shows, some industries are on the up-and-up, while others may not be the smartest investment in the current economic climate.

Investment and Ongoing Expenses

In my experience, many franchises fail due to undercapitalization. The franchisee sets aside the minimum amount of capital, often given as an estimate in the Franchise Disclosure Document (FDD). But then, when unexpected costs emerge, the franchisee lacks the funds.

As in any business venture, you should be prepared for unexpected costs such as higher-than-anticipated rent, rising labor expenses, and equipment repairs. And it’s crucial to have enough capital set aside to cover the expenses. Additionally, I suggest thoroughly reading through the FDD to find out who is responsible for what costs.

Franchisee’s Past Experience

Compared to independently operated businesses, franchises are often easier to get off the ground. In fact, many franchisees purchase a franchise with next to no experience in the industry.

Nevertheless, operating a franchise is hard work, and you shouldn’t underestimate the responsibilities that will be involved. The fact of the matter is that franchisees with past business experience or industry-relevant skills will have a higher success rate than franchisees who are new to the industry.

When deciding which franchise and industry to invest in, consider which of your skills you can bring to the table. 

Support From Franchisor

Another key factor that will definitely impact a franchise’s failure rate is the amount of ongoing support the franchisor provides. Before signing a franchise agreement, double-check what the franchisor’s obligations are to you. Will you only receive a basic level of initial training? Will you have to cover fees for any additional required training out of your pocket?

Why Do Franchises Have a Lower Failure Rate Than Other Businesses?

Tried and Tested Business Model

Independent startups often go through a trial-and-error phase, adjusting their strategies until they find what works best. Franchisees, on the other hand, receive a roadmap for success from day one. Everything from branding to operational procedures and marketing strategies is already in place, giving franchise owners a significant advantage over other business types.

Ongoing Support From the Franchisor

Another advantage that franchisees have is that they don’t have to figure things out alone. Most franchisors provide extensive training and marketing support to help all branches of the parent company succeed. After all, the success of a franchisee means more money in the franchisor’s pocket. Franchisors also manage the national advertising campaigns, which constantly drive growth and bring in new customers.

Brand Recognition

Instead of building a brand from scratch and slowly acquiring trust, franchisees gain brand recognition immediately and can access a loyal customer base. Customers are more likely to visit a franchise they already know and trust, making it easier to attract business from day one.

4 Tips for Achieving Success as a Franchise Owner

Wondering how you can avoid failure? I’ve been helping franchisees find success for decades. Here are some of my top pointers.

Do Your Due Diligence

I can’t stress enough how important it is to do your homework. That means going through the FDD with a fine-toothed comb, bombarding your potential franchisor with questions, and discussing your investment opportunity with as many experts as possible. Franzy’s platform is one of the best resources for researching different franchise opportunities and connecting with potential franchisors.

Leverage Franchisor Support

At the end of the day, ensuring your franchise is successful is in the best interest of both you and your franchisor. So, make sure to leverage your franchisor’s support services — and find out what they encompass long before signing any contracts.

Hire and Train Employees Effectively

Make sure you’re provided with everything you need to get new employees up to speed quickly with your operational guidelines. When considering your staffing requirements, don’t forget to account for things like holidays and sick days. It’s worth bearing in mind that wages often cost new franchisees a lot more than they anticipate, so be thorough with your estimations and keep some capital aside for unexpected circumstances.

Manage Cashflow

I mentioned earlier that a key factor behind the failure of many franchises is undercapitalization. Make sure to find out about unexpected costs, how long it will likely take to break even, and what your profit margins will realistically look like.

Ask Existing Franchisees for Advice

One of the best ways to get some insight into the successes and failures of other franchisees in an organization is to simply ask existing franchisees about their experience. I recommend meeting with some current franchisees and asking questions before you make a final decision.

Work With Franzy to Ensure You Purchase the Right Franchise

The best way to ensure the franchise you purchase is a good fit is to work with an experienced and reputable broker like Franzy. We understand the industry better than anyone else and can connect you with any franchise brand in the country. Instead of spending hours researching and guessing, let Franzy’s Match Finder streamline the process and connect you with franchises built for success. If you’re serious about finding the right fit, this is the smartest place to start.