Calculating the average failure rate for a franchise is nuanced and complex. Thousands of small businesses start and fail every year, franchises included. Businesses fail for numerous reasons like ill-equipped founders without adequate startup capital to unforeseeable market forces (recession, consumer habits, product innovations, etc.).
Starting any business is always a calculated risk, but investing in a franchise can mitigate some of your risk. You have the advantage of a built-in supply chain, marketing, training, and sales support. It’s worth noting that a lack of marketing knowledge or execution is a commonality of why small business ventures fail.
While there’s not a single way to measure how often franchises fail, there is reliable data to show they don’t fail at the same rate as other startups or small businesses.
What are the Factors that Lead to a High Franchise Failure Rate?
The franchise industry represents businesses across 3,000 companies in 80 industries. There’s simply no comprehensive way to follow the statistics across such a vast and diverse data set. Why a business fails, including franchises, could be due various circumstances.
Measuring why those individual franchises fail involves constant monitoring and reporting. There’s bound to be some subjectivity in that data. Failure rates are often in the eyes of the beholder, especially with entrepreneurship.
A Lack of Funding
A high rate of businesses fail because the founder didn’t account realistically for start-up costs. To stay in business after you purchase your franchise, you will still need adequate liquidity to stay afloat, primarily because you’ll need to support yourself, your family, and pay business expenses beyond the franchise fees (rent, supplies, labor, etc.) after you open your doors.
Put Simply: Bad Timing
In the late ‘90s, buying a Blockbuster franchise probably looked like a safe bet…until it wasn’t. Netflix introduced an innovative new business model, and consumers lost their appetite for late fees and a la carte movie rentals. Construction tends to be a safer bet because there will always be a market for home improvement and construction (even as it fluctuates).
Inadequate Resources from the Franchise Itself
There’s a reason the gold standard of all franchises remains McDonald’s. There is no mistaking what those double arches represent. McDonald’s continues to innovate around its products while never failing to adhere to its core value proposition (fast, cheap, delicious food). You could say the same for Taco Bell and the consumer-related products that make up the vast number of the top 20 franchises in the U.S. They invest in brand quality and reinforce that alignment among the franchisees.
The Overall Success Rate of Franchises
According to leading industry research, from 2006-2010, 91.2% of the franchises tracked were still open. That’s staggering, considering that most startups fail within the first year.
If you’re buying a franchise managed by a brand with history, your customers already have two things that are hard-won in any enterprise: Trust and consistency. The reason drivers will pull off of an interstate at midnight during a road trip and into the drive-thru of a Taco Bell is because the quality, flavor, and menu will be identical to the Taco Bell where they regularly go for lunch.
Franchisees also have immediate access to a knowledge base that other startup founders often learn by trial and error. When you invest in a franchise, that knowledge base is transferred to you through training, as are the resources you need to deliver the right products at the right price to the right consumer base. In other words, when you invest in a franchise, you already have a support system in place and start on potentially better footing than the average entrepreneur.
What are the Most Important Keys to Unlocking Franchise Success?
The internet offers plenty of advice when it comes to making your business a success. For franchise owners, a common go-to is a list from The International Franchise Association (IFA) of the 10 things any franchisee needs to do to ensure their business is a success. In addition to those, here are some other factors to consider.
What is Your Definition of Success?
Success is often personal and its definition will vary from person to person. What does it mean for you? Do you want to have a business to pass down to your children? Do you want financial independence and early retirement? Do you want to liquidate your franchise within five years and use that capital to start another business?
In other words, before you invest in a franchise, be clear about what your goals are. Share those goals throughout your franchise journey to receive the mentoring and skill training you need.
Digital Marketing and SEO
Not every franchise will provide you with the right resources to help your business website rank well in online searches. For example, at Honest Abe Roofing, we provide ongoing marketing support, including our best-in-class SEO program. Hiring an outside agency to execute an effective localized SEO strategy could cost upwards of $3-5,000/month.
Invest in a Growth Industry
There’s no such thing as a 100% future-proof product, but roofing certainly comes close. The industry continues to grow year over year. Homeowners will typically prioritize roofing issues over other types of investments. At our company alone, the average Honest Abe Roofing franchise generated over $2M in annual revenue in 2020.
Work with a Company that Offers Training and Support
Not all franchises are built alike. At Honest Abe, we will work with you to give you the keys to make your roofing business a success right away. We provide you with adequate training, suppliers, marketing support, and the labor pool so you can start earning an income sooner. We also provide affordable financing to provide you the liquidity to be successful.
If you’re passionate about the roofing industry (even if you don’t have any prior roofing experience), the team at Honest Abe Roofing gives you the tools to deliver excellent products and services to your customers.
With enough time and dedication, your roofing franchise can thrive in the future. Click here to learn more about Honest Abe’s roofing franchise model today.