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Franchise Success Statistics
Franchises are a significant engine of the U.S. economy, generating a staggering output of $897 billion in 2024. That’s up from $794 billion in 2019 and represents a strong recovery from the pandemic low of $677 billion. Those are pretty strong franchise success statistics, showing the power of this type of small business.
While franchises are often associated with fast food and other quick-service businesses, the franchise model is used across industries. Hotels, car dealerships, service companies, and fitness centers are just some examples of available franchise opportunities. Many are family-owned businesses that have been passed down for generations.
As the franchise sector grows, it’s perhaps never been a better time to start a franchise business. According to the International Franchise Association (IFA), franchises’ gross domestic product (GDP) was projected to grow at a rate of 4.3% in 2024 and add 221,000 jobs in the U.S. For a business owner, those are exciting franchise industry statistics.
Franchise Success Stats: Weighing the Pros and Cons
Franchise success statistics show they offer an opportunity for motivated entrepreneurs to join a proven company. They can run a turnkey business with a recognized brand in exchange for a licensing and royalty fee. Most franchises come with set operating procedures, design, and product offerings. There’s no obligation on the franchisee to start the business from the ground up, and the franchisor typically provides essential support in the form of training and supplies.
Franchises also have strong success rates. According to an Entrepreneur analysis published in 2023, the average of terminations and closures was just 3.9%. That’s great news given that overall in the U.S., 20.4% of businesses fail in the first year and 49.4% fail in the first five years. Franchises can be one of the more resilient businesses to start.
Nonetheless, franchises have significant challenges, so they are not the best fit for every aspiring business owner. It can cost a lot of money to buy a franchise. In addition to the initial fees and costs, ongoing royalties are paid to the franchisor.
Location and territory can also be a constraints, as you may not be able to grow wherever or whenever you want. Exclusive territories, while they protect your assigned market, limit growth into surrounding areas where there may be other franchisees. However, it’s important to note that territories are strategically and creatively designed and unique for each market.
What’s the Difference Between a Franchise and a Startup?
While a franchise involves joining an established brand and its network of locations, a startup creates an entirely new enterprise. A startup is wholly driven by the entrepreneur and other stakeholders, who might have unique visions for a new business. Some reasonably priced franchises, like WIN Home Inspection, can cost less than self-funding a startup. Significant unknowns exist even if you can launch a startup with minimal investment. No proven business model is already established; the entrepreneur has to create one and learn as they go.
Compared to a franchise, there are many more unknown variables with a startup. You don’t know if people will like your product or buy it. It can be challenging to find and market to customers. If an entrepreneur lacks experience or support, it can mean long hours with an uncertain payoff—about 35% of startups make it to 10 years, which means about 65% fail before that time. Survival does not necessarily mean thriving, as many entrepreneurs might just stay afloat.
Although there is no guarantee of success with either a franchise or a startup, the easy comparison is that a startup holds more risk of financial failure. Conversely, a startup offers more opportunities for a self-directed business. However, getting a startup out of the gate and standing on its own can be an all-consuming endeavor during those early years.
What’s the Process for Starting a Franchise?
If you are interested in owning a franchise, there are a few steps you might want to take. At every stage, consider whether the significant investment you are considering aligns with your financial and individual resources, skills, and interests.
Here is the process virtually every new franchisee goes through:
Reflect upon your interests and goals. This can give you a sense of whether owning a franchise fits with your personal and professional interests. It can also lead you to the right industry for your skills and background. By choosing an industry that matches your skill set, you can rely on your personal hunger and drive for success. You won’t get easily worn down when things get tough as long as you love what you do.
Find a franchise opportunity. You can search franchise directories or other sources to find a good fit. The franchisor should have information available about whether they are taking on new franchisees and what it looks like to become a new franchise owner.
Meet with the franchisor. The franchisor can answer any industry, business model, or franchise process questions. They might ask questions about your background and interest in owning a franchise with them.
The Federal Trade Commission (FTC) requires franchisors to provide potential franchisees with a franchise disclosure document (FDD). The FDD covers the essentials, such as fees and the franchisor’s obligations to the franchisee and vice versa. If you think the franchise might be a good fit, acknowledging and reviewing the FDD allows you to continue having discussions with the franchisor.
Perform your due diligence. You should also seek advice from a professional, such as a lawyer or business consultant, to objectively assess the risk of owning the franchise. You’ll also want to figure out how you will fund your new business venture. If you’ll need a small business loan, you’ll want to ensure you’re qualified. Consider also speaking with current franchisees about their experience with the franchisor to get an insider’s perspective on the franchise culture and success they’ve had.
Secure financing. Typically, franchisors don’t fund or provide financing to new franchisees, so you’ll need to find other ways to fund the purchase of the business if you aren’t able to fund it yourself. Once you’re ready to join a franchise, submit a business plan and loan application to the bank or credit union. Remember, you’ll need enough funds to cover the total start-up costs as well as living expenses for 6-12 months if others depend on you for monthly income.
Sign the franchise agreement. At this stage, you and the franchisor have agreed to become partners – congratulations! After the agreement is signed, you are officially the newest franchise owner, and you should receive any training (if applicable) and information from the franchisor on the next steps toward launching your new business.
What Are Some Options for Becoming a Franchisee?
Besides searching online directories like Entrepreneur and VetFran, you can also find potential franchise opportunities through online research, trade shows, entrepreneur expos, connections in your community, and identifying a local gap and filling it. One option is WIN Home Inspection, the #1-ranked inspection service franchise. Other options include One Hour Heating & Air Conditioning in the HVAC space or Molly Maid in the home cleaning space.
Franchise success statistics show this option offers a great opportunity to start the entrepreneurial journey with a lower risk of failure than with a startup. Purchasing a franchise is entering a turnkey business where you benefit from adopting a proven model. Think about it: purchasing a franchise is like buying a move-in-ready home, while a startup is like buying a fixer-upper. It might seem like a lower financial cost, but a startup takes a lot of time and money, versus a franchise that is ready to go.
Although risks exist, you can weigh the pros and cons and determine whether becoming a franchisee might be right for you. Talk to WIN Home Inspection today about the benefits of entering this industry.
