Franchise failure rates

“Franchise failure rate” gets quoted as one number, usually a reassuring one, and usually without a source. The honest answer is that it depends almost entirely on the brand. Each franchisor has to report, for each of the last three years, how many of its franchised locations opened, closed, were terminated, weren’t renewed or were bought back. Those counts are the closest thing there is to a failure rate, and they are on each brand’s page here.

This article adds them up for the 1,133 brands that report all three years, from 2023 to 2025. An exit is a franchised location that ceased operating, had its agreement terminated or wasn’t renewed. The exit rate is exits per year as a share of the brand’s average number of franchised locations. Locations that changed hands between owners aren’t exits, and neither are buy-backs, because the location keeps trading.

The typical franchise exit rate

The median brand loses 3.0% of its franchised locations a year. Pooling every location of every brand gives a similar 4.4%, which means the big systems and the small ones aren’t far apart on average. Over three years, a typical brand loses about one location in 11.

The spread is what matters. At one end, 340 brands lost no franchised location at all in three years, while 285 lost 8% or more a year, enough to turn over a third of the system in four years. A rate that high usually means owners can’t make the numbers work, the franchisor is weeding out underperformers, or both.

Closed, terminated or not renewed

The three kinds of exit mean different things. A closure (the filing calls it ceasing operations) is an owner shutting the doors, often because the location loses money. A termination is the franchisor ending the agreement, usually for unpaid royalties or breaking the brand’s standards. A non-renewal is an agreement that ran its full term and wasn’t extended, which can be the owner retiring as easily as a failing location.

Franchisors also bought back 4,792 locations over the same years. Those aren’t counted above. A handful of big systems account for most of them; see the guide to buying a franchise resale for which brands buy back the most.

Franchises with the lowest failure rates

These brands averaged at least 50 franchised locations over the three years and lost the smallest share of them; ties go to the larger brand. Large restaurant systems with long waiting lists for new owners do well, and so do service brands whose owners tend to stay for decades. A low rate isn’t proof that every location is profitable, since an owner can keep a weak location open, but it is the best single sign that owners stay. Among these brands, the typical one lost 4.2% a year and 13 lost none.

Franchises with the most exits

At the other end, these brands with at least 50 US locations lost the largest share. Several are young systems that sold territories quickly and are now losing the owners who never got going; others are mature brands shrinking in a tough market. Some terminate owners for not hitting development schedules, which counts the same as a closure here even if no storefront ever opened.

Exit rates by industry

Bubble tea, entertainment and moving brands lose the fewest owners, typically none of locations a year or less. The highest rates are in staffing, painting and tax, where the typical brand loses 9.1% or more. Industries where owners are licensed agents or salespeople, such as real estate, insurance and staffing, lose the most, because an agent who stops selling simply leaves. Businesses with a building and a lease, like hotels, gyms and restaurants, lose fewer, partly because walking away from a lease is expensive.

Exit rates by cost to open and size

The cheaper the franchise, the more often owners leave. That runs against the usual advice to start small, and the reason is practical: a low-cost franchise is easy to buy and easy to walk away from, and many are part-time or one-person businesses whose owners move on. An owner with a million dollars and a ten-year lease in the business tries much harder to make it work.

By size, the largest systems typically lose 2.3% a year and the smallest 0.4%; small systems look steady partly because they have few locations to lose. The highest typical rate is in the middle, among brands with 50 to 199 locations (5.6%): big enough to have sold many territories, not yet big enough for every owner to have a working model nearby to copy.

Reading a brand’s exit record

On any brand page, look at the location table year by year rather than just the total. A brand whose exits are rising each year is a different risk from one with a single bad year. Compare exits with openings: a brand opening 100 locations and closing 80 is growing on paper but churning owners underneath. And check transfers, which can hide trouble when struggling owners sell at a loss rather than close.

Then call former owners. Every franchisor has to list owners who left the system in the last year, with their last known contact details, and they are the most candid people you will speak to. Ask why they left, whether they made money, and whether they would buy the franchise again. The steps to buying a franchise cover what else to ask, and the lawsuits and bankruptcies guide shows which brands have disputes with their owners on record.