If you\u2019re thinking about investing in a franchise, one question is likely at the forefront of your mind: What are my chances of failure?<\/p>\n\n\n\n
Purchasing a franchise can cost hundreds of thousands of dollars. So, if you\u2019re going to risk that much capital, you need to know your chances of achieving your business goals.<\/p>\n\n\n\n
Finding precise data on failure rates for franchises can be challenging, and many franchisors don\u2019t release such data for understandable reasons, but it certainly isn\u2019t impossible!<\/p>\n\n\n\n
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\u2019ll also discuss some key factors that impact your chances of success as a franchisee.<\/p>\n\n\n\n
Gauging the exact average failure rate for a franchise is incredibly challenging. There are many different franchise industries<\/a>, each with its own benefits and failure rates.<\/p>\n\n\n\n Most experts place the franchise failure rate between 20% and 50%<\/a>, meaning that around 5 to 8 of every 10 franchisees will be successful. These are not bad odds if you ask me!<\/p>\n\n\n\n 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<\/a> at around 90%!<\/p>\n\n\n\n As you might imagine, the failure rates for a restaurant franchise and a home services franchise are bound to be very different. Let\u2019s take a look at the failure rates of various franchise industries.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n The restaurant industry<\/a> gets a bad rep thanks to a common myth that around 90% of them fail <\/a>within their first year. However, the data suggests that this is simply not true.<\/p>\n\n\n\n A comprehensive UC Berkeley study in 2014<\/a> 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.<\/p>\n\n\n\n Since 2014, the <\/a>USA\u2019s full-service restaurant franchise industry has experienced continued growth<\/a>. 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.<\/p>\n\n\n\n Similarly, the fast food industry has enjoyed continued growth since 2014<\/a>, besides a temporary drop in 2020. Overall, this sector generated over $387 billion in 2023.<\/p>\n\n\n\n So, the next time somebody tells you investing in a restaurant franchise<\/a> is a fool\u2019s game, you can tell them the data suggests otherwise.<\/p>\n\n\n\n Coffee culture is now a mainstay in many parts of the world, with Starbucks currently being the undisputed global leader<\/a> of the coffee shop industry. While Starbucks doesn\u2019t offer franchising opportunities, there\u2019s still plenty of room for franchisees to capitalize on the growing market.<\/p>\n\n\n\n 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<\/a> in the first year is around 30%. Keep in mind that this figure accounts for all coffee shops and caf\u00e9s, not just franchises. Since franchises tend to have better odds than independently run businesses, the failure rate for franchise coffee shops is likely lower.<\/p>\n\n\n\n In 2024, the market size of the USA\u2019s coffee and snack shops industry<\/a> surpassed $68 billion. With at least a 70% chance of surviving beyond the first year, investing in a coffee franchise such as Dunkin\u2019 Donuts<\/a>, The Coffee Bean<\/a>, or Scooter\u2019s Coffee<\/a> could be an extremely lucrative venture.<\/p>\n\n\n\n Many investors recommend avoiding investing in physical retail stores<\/a> as online shopping has become increasingly popular. While I\u2019m not denying that it can be a risky business, I also think there are some great opportunities that these inventors fail to see.<\/p>\n\n\n\n Last year, the number of retail store openings was set to outpace closures by 20%<\/a>. Moreover, shopping center vacancy rates fell to just 5.3%, the lowest in 15 years.<\/p>\n\n\n\n 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\u2019t offer. <\/p>\n\n\n\n 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<\/a> survey, the majority of people across all age groups would like to see the US\u2019s traditional shopping malls revived.<\/p>\n\n\n\n Many prospective franchisees have their sights set on the home services industry<\/a>, 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 <\/a>home services industry accounted for more business openings than any other industry<\/a> in the USA in 2023.<\/p>\n\n\n\n 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 \u2014 South Dakota\u2019s number of home services businesses increased by 39%.<\/p>\n\n\n\n Metro areas are also seeing an influx of these companies. For example, Kansas City saw an increase of 22%, while Cincinnati\u2019s increased by 23%.<\/p>\n\n\n\n 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<\/a> or Closet Factory<\/a> before the market becomes too saturated.<\/p>\n\n\n\n With the modern emphasis on physical and mental health, you might like the idea of investing in a gym franchise \u2013 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<\/a>.<\/p>\n\n\n\n According to the International Health, Racquet & Sportsclub Association (IHRSA), around 81% of gyms close down within the first year<\/a>. 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.<\/p>\n\n\n\n I\u2019m not suggesting that you should turn away from your dream if you\u2019re passionate about operating a gym. Franchises like UFC Gym<\/a> and Snap Fitness<\/a> can be well worthwhile investments. I just recommend doing a lot of research and making sure you\u2019re following your head as much as your heart.<\/p>\n\n\n Sign up for our free email newsletter. It’s a 5-minute read once a week to help you level up on the franchising industry.<\/p>\n\n\n\nFailure Rates By Industry: What Types of Franchises Are Riskier?<\/h2>\n\n\n\n
Restaurants <\/h3>\n\n\n\n
Coffee Shops and Caf\u00e9s<\/h3>\n\n\n\n
Retail<\/h3>\n\n\n\n
Home Services <\/h3>\n\n\n\n
Health and Wellness (Gyms)<\/h3>\n\n\n\n
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