Real franchise failure rate data for 2026. SBA loan default rates, failure by industry, and how to assess risk from FDD data before investing.
Quick answer The median franchise system closes 4.7% of its franchised units in a single fiscal year, based on the Item 20 outlet tables in 858 current FDDs that VetMyFranchise reconciled line by line. The spread is what matters: the healthiest quarter of systems close under 1.9% annually, the worst tenth close over 16.2%, and 34% of systems closed more units than they opened. SBA-backed franchise loans default at roughly 20-25% over a ten-year window.
The median franchise system closes 4.7% of its franchised units in a single fiscal year. That number comes from the Item 20 outlet tables in 858 current Franchise Disclosure Documents, each one reconciled line by line so that outlets at the start of the year plus openings minus every loss column equals outlets at the end. It is not an estimate, a survey, or an industry average. It is arithmetic on what franchisors are legally required to disclose.
The average hides the only thing that matters. In the same twelve-month window, Wingstop closed 4 of 2,154 franchised units and 9Round closed 59 of 199. Same country, same economy, same labor market, a 156-fold difference in outcome.
You have probably heard the statistic: “franchises have a 90% success rate” or “franchise businesses are 80% more likely to succeed than independent businesses.” These numbers are cited endlessly in franchise sales presentations, industry publications, and even some business textbooks.
The problem: these statistics are not real. There is no credible study that supports a 90% franchise success rate. The most commonly cited version traces back to a misquoted and now-retracted study. The franchise industry has perpetuated this myth because it sells franchises.
That does not mean franchises are bad investments. It means you need real data, not marketing slogans, to assess your risk.
Every franchisor files an Item 20 table titled “Status of Franchised Outlets.” It reports, for each of the last three fiscal years, how many outlets the system started with, how many opened, how many were terminated, how many were not renewed, how many the franchisor reacquired, how many ceased operations for other reasons, and how many were left at year end.
We parsed that table out of every FDD in our library, took the most recent fiscal year, and kept only the systems where the arithmetic foots exactly. Closures are terminations plus non-renewals plus ceased operations for other reasons. Reacquisitions are excluded because those outlets keep serving customers under franchisor ownership. Restricting to systems with at least 25 franchised outlets, so a single closure cannot swing the percentage, leaves 858 brands.
| Percentile | Annual closure rate |
|---|---|
| 25th | 1.9% |
| 50th (median) | 4.7% |
| 75th | 9.5% |
| 90th | 16.2% |
| 95th | 21.3% |
Source: Item 20, Table 3 of 858 current FDDs (2025 and 2026 filings), systems with 25+ franchised outlets, VetMyFranchise analysis.
Grouped a different way:
More than a third of franchise systems close at least one unit in every fourteen. Nearly a quarter close one in ten. Neither of those systems is unusual or scandalous. They are the ordinary lower half of a market that sells itself as a 90% success story.
Openings alone tell you nothing. What matters is whether the system is net positive.
This is where a widely repeated benchmark falls apart. A closure-to-opening ratio above 0.3 gets cited constantly as a warning sign. Against the real distribution, 64.7% of systems sit at or above 0.3. A threshold that flags two-thirds of the market is not a filter. The line that actually separates outcomes is 1.0, the point where a system closes more than it opens, and one system in three crosses it.
Industry-wide statistics are useful for calibration. What they cannot do is tell you whether the brand in front of you is at the 10th percentile or the 90th. This is the table an AI summary cannot generate, because it requires reading 858 PDFs.
| Brand (filing entity) | Franchised units at start | Opened | Closed | Annual closure rate | Net change |
|---|---|---|---|---|---|
| Planet Fitness | 2,201 | 100 | 3 | 0.14% | +97 |
| Wingstop | 2,154 | 384 | 4 | 0.19% | +375 |
| Domino’s Pizza (traditional) | 6,751 | 214 | 15 | 0.22% | +197 |
| McDonald’s USA | 12,887 | 221 | 46 | 0.36% | +175 |
| Servpro | 2,286 | 79 | 11 | 0.48% | +68 |
| The UPS Store | 5,350 | 187 | 49 | 0.92% | +137 |
| 7-Eleven | 7,229 | 283 | 78 | 1.08% | +45 |
| Jimmy John’s | 2,647 | 123 | 33 | 1.25% | +90 |
| Wendy’s (Quality Is Our Recipe, LLC) | 5,552 | 100 | 71 | 1.28% | -6 |
| Burger King | 5,524 | 83 | 76 | 1.38% | -6 |
| Kumon | 1,671 | 62 | 28 | 1.68% | +34 |
| Sonic | 3,144 | 32 | 56 | 1.78% | -24 |
| Firehouse Subs | 1,206 | 73 | 30 | 2.49% | +43 |
| Sport Clips | 1,732 | 14 | 44 | 2.54% | -30 |
| Panera Bread | 1,105 | 33 | 32 | 2.90% | +1 |
| Anytime Fitness | 2,290 | 53 | 72 | 3.14% | -19 |
| Arby’s (U.S.) | 2,286 | 136 | 78 | 3.41% | +58 |
| Jack in the Box (Different Rules, LLC) | 2,040 | 20 | 75 | 3.68% | -55 |
| KFC (U.S.) | 3,558 | 9 | 156 | 4.38% | -154 |
| Jackson Hewitt | 2,981 | 76 | 142 | 4.76% | -237 |
| Subway (Doctor’s Associates LLC) | 19,502 | 499 | 1,076 | 5.52% | -729 |
| Supercuts | 1,935 | 11 | 137 | 7.08% | -234 |
| 9Round | 199 | 3 | 59 | 29.65% | -56 |
Source: Item 20, Table 3 of each brand’s current FDD. Figures cover the most recent fiscal year disclosed: fiscal 2025 for all brands except Planet Fitness (fiscal 2024) and Jackson Hewitt (fiscal year ended April 30, 2025). Closed = terminations + non-renewals + ceased operations for other reasons. Net change = outlets at end of year minus outlets at start, and therefore also reflects franchisor reacquisitions, which were material at 7-Eleven (160), Jackson Hewitt (171), Supercuts (108), and Wendy’s (35). Subway’s totals row does not foot by 4 outlets.
Four things in that table are worth sitting with.
The spread within a single industry is larger than the spread between industries. Wingstop, Domino’s, Jimmy John’s, Sonic, Arby’s, Jack in the Box, KFC, and Subway are all quick-service restaurants. Their annual closure rates run from 0.19% to 5.52%, a 29-fold range. Picking the right brand matters more than picking the right industry, which is the entire argument for reading the FDD instead of the category write-up. If you are working the other direction and screening on returns first, our roundup of the most profitable franchises to own is the companion filter.
Openings can mask decline. Arby’s opened 136 units and closed 78. Wingstop opened 384 and closed 4. Both systems grew. Only one of them is growing because the units work.
Some systems are shrinking without closing much. KFC’s U.S. system closed 156 units, a 4.38% rate that sits just below the median. What makes it alarming is the 9 openings against it. A system that closes at a normal rate but has stopped opening is not stable, it is draining.
Subway is the outlier at scale. In fiscal 2025 Subway disclosed 4 terminations, 46 non-renewals, and 1,026 outlets that ceased operations for other reasons, against 499 openings. Its systemwide table shows franchised outlets falling from 20,576 to 20,133 to 19,502 to 18,773 across three years, with zero company-owned outlets in any of them. That is 1,803 net franchised units gone in three years from the largest sandwich system in the country. If you are weighing that category specifically, our best sandwich franchises breakdown puts Subway’s numbers next to Jersey Mike’s, Jimmy John’s, and Firehouse.
The same 858 systems, grouped by industry. Only categories with at least 15 reconciled systems are shown.
| Industry | Systems | 25th pct | Median | 75th pct |
|---|---|---|---|---|
| Real Estate | 40 | 4.3% | 7.7% | 10.4% |
| Financial Services | 18 | 4.1% | 7.3% | 16.3% |
| Fitness & Wellness | 49 | 1.7% | 6.8% | 11.6% |
| Home Services | 119 | 4.1% | 6.7% | 11.2% |
| Retail | 65 | 1.9% | 5.7% | 10.0% |
| Business Services | 46 | 1.9% | 5.0% | 9.1% |
| Cleaning & Maintenance | 73 | 2.1% | 4.7% | 9.7% |
| Hospitality & Travel | 32 | 2.9% | 4.3% | 7.0% |
| Food & Beverage | 198 | 1.7% | 3.8% | 9.3% |
| Automotive | 29 | 1.0% | 3.8% | 7.0% |
| Senior Care | 47 | 1.6% | 3.5% | 7.9% |
| Pet Services | 22 | 1.7% | 2.9% | 5.6% |
| Child Services & Education | 55 | 1.2% | 2.8% | 4.8% |
| Health & Beauty | 42 | 0.9% | 2.5% | 6.4% |
Source: Item 20, Table 3 of 858 current FDDs, VetMyFranchise analysis.
This ranking runs backwards from the conventional story. The standard advice is that restaurants are the risky category and low-overhead service businesses are the safe one. On an annual closure basis, food and beverage sits at a 3.8% median while home services sits at 6.7% and real estate brokerage at 7.7%.
The reconciliation is capital, not survival. A restaurant that fails costs its owner a six or seven-figure build-out, so the loss per closure is severe and the operator fights hard to avoid it. A home services or brokerage franchise can be exited for the cost of walking away from a van lease and a territory fee, so marginal operators leave quickly and quietly. Low entry cost and low closure rate are different things, and the categories that market themselves on the first frequently score worst on the second. That is also why lifetime SBA default rates and annual Item 20 closure rates can rank industries differently: one measures debt written off, the other measures doors that shut.
Vetting a specific brand? The full 12-section FDD analysis covers Item 19 earnings, litigation history, fee footnotes, and a buyer verdict personalized to your capital and market: $49 per brand, or start by comparing closure data across 2,000+ franchises.
Item 20 tells you what happened in one year. SBA loan data tells you what happens over a decade.
The most reliable long-horizon franchise failure data comes from the U.S. Small Business Administration. SBA loans are the most common financing vehicle for franchise purchases, and the SBA tracks default rates by brand, which we compile in our SBA loan default rates by franchise breakdown.
Key findings from SBA franchise loan data:
Most “franchise success rate” claims lean on numbers the franchisor supplies, and franchisors have every reason to count generously. SBA loan defaults work differently. They come from a third party, a federally guaranteed lender with real money at stake and no interest in flattering the brand. When a franchisee stops paying, the default gets recorded whether or not the franchisor calls that unit a success. That makes lender data the cleanest available proxy for real-world failure, and we break it down brand by brand in our analysis of SBA franchise default rates by category.
Franchisor-reported figures also carry survivorship bias. Item 19 earnings claims usually describe the units that stayed open and reported for the full year. The ones that closed mid-year, never opened, or quietly changed hands drop out of the sample, so a brand can post a healthy “average” while the median tells a grimmer story and the bottom quartile bleeds cash. That is why the gap between average and median Item 19 figures tells you more than any single advertised number.
None of this makes SBA data flawless. It only captures debt-financed units, so cash buyers and non-SBA lenders stay invisible, and a brand new to the loan market simply has too few loans to judge. Read the default rate as one strong signal, not the final verdict.
The BLS reports that approximately 20% of all new businesses fail within the first year, and about 50% fail within five years. For franchises specifically, the first-year failure rate is lower, roughly 10-15%, but the five-year failure rate narrows the gap noticeably.
Why the gap narrows over time: Franchise fees, royalties, and operational restrictions create ongoing financial pressure that independent businesses do not face. A franchise that survives year one is not necessarily on solid ground if the unit economics are marginal after royalties and fees. Ramp-up matters too: a unit that takes years to break even burns through reserves long before it ever fails outright. Our breakdown of how long it typically takes a franchise to turn profitable shows why the second and third years often decide the outcome.
Across VetMyFranchise’s analysis of 2,000+ FDDs, these are the factors most strongly correlated with franchise failure, and the data points to focus on during your due diligence.
The single strongest predictor of future failure is a system that is already shrinking. Thirty-seven percent of the systems we reconciled ended their most recent fiscal year smaller than they started it, so this is common enough that you will meet it, and serious enough that you should treat it as disqualifying until the franchisor explains it.
What to calculate: Net unit change = (new units opened) - (units closed + terminated + not renewed). If this number is negative for two or more consecutive years, proceed with extreme caution. Anytime Fitness, in the table above, ran net negative in all three disclosed years: -20, -8, then -19.
A high closure rate with healthy openings is churn. A moderate closure rate with almost no openings is abandonment. KFC’s U.S. system opened 9 franchised restaurants against 156 closures. Supercuts opened 11 against 137. When a franchisor cannot sell new units in its own system, the people closest to the economics have already voted.
When Item 19 data is available, calculate estimated owner cash flow after all expenses including royalties, advertising fund contributions, debt service, and a reasonable manager salary (even if you plan to owner-operate, because your time has value).
Red flag: If the median unit cannot generate at least $60,000-$80,000 in owner benefit after all costs, the system likely has marginal unit economics that leave little room for error.
If the franchisor itself is losing money or has going concern warnings from auditors, the support infrastructure you are paying royalties for may not survive. A franchisor bankruptcy can devastate franchisees even when their individual units are performing well.
A pattern of franchisee lawsuits, particularly those alleging misrepresentation of earnings or territorial encroachment, suggests systemic problems that drive failure.
When the actual cost to open consistently exceeds the Item 7 high-end estimate, franchisees start undercapitalized. Undercapitalization is one of the leading causes of small business failure across all categories.
It is titled “Status of Franchised Outlets” and it is broken out by state with a totals row at the bottom. Use the totals row for the most recent fiscal year. Ignore Table 4, which covers company-owned outlets, and Table 1, which reports only net change. If you have not read one of these documents before, start with what a Franchise Disclosure Document contains.
Closures = terminations + non-renewals + ceased operations for other reasons. Do not include “reacquired by franchisor.” Those outlets keep operating; the franchisor just owns them now. Counting them as closures inflates the rate, and leaving them out of the net-change math understates the decline, which is why the table above reports both.
Outlets at start + opened - terminations - non-renewals - reacquisitions - ceased operations should equal outlets at end. About one table in four fails this check. Common causes are transfers, relocations booked into the ceased column, and temporary closures that reopen in a later year. A gap is not automatically fraud, but it is a fair question for the franchisor.
Closures divided by outlets at start of year gives the annual closure rate. Then place it: under 1.9% is top-quartile, 4.7% is median, above 9.5% is bottom-quartile, above 16.2% is bottom-decile. For a full worked example, see how to calculate a franchise’s true closure rate.
Prefer to skip the arithmetic? Our franchise network health report scores openings, closures, and net unit change for hundreds of brands so you can see the closure trend at a glance.
If Item 19 exists, model your expected cash flow using the median revenue figure (not the average), the high end of Item 7 costs, and all fees from Item 6. Our franchise investment calculator totals those upfront costs and fees for you. If Item 19 does not exist, that silence is itself a signal, and here is what a missing Item 19 usually means. Either way, contact at least 10-15 franchisees from the Item 20 contact list, and ask specifically for names of operators who left.
What happens if revenue comes in 20% below the median? Can you survive 18 months of below-average performance? Do you have reserves beyond what Item 7 recommends? Our cash-flow stress test built on 2026 SBA rates walks through the math at today’s higher borrowing costs, where debt service alone can sink an otherwise viable unit.
Do not evaluate a franchise in isolation. Compare its closure rate, fee structure, and investment requirements against other franchises in the same industry. Our comparison tool makes this straightforward, and the elevated-risk brands in any category are usually obvious once you line the numbers up.
Every figure on this page except the SBA and BLS statistics comes from Item 20, Table 3 of a current FDD, with these rules:
What this does not measure: franchisees who sold at a loss but kept the unit open, units that transferred hands three times before closing, systems too new to have a meaningful denominator, and any brand not yet in our library. A one-year closure rate is a snapshot, not a lifetime failure probability, which is why the SBA default figures still belong on this page.
Franchise failure rates are not as low as the industry claims and not as catastrophic as the critics suggest. The real finding is that averages are close to useless when the median system closes 4.7% of its units annually, the best close 0.14%, and the worst close 29.65%.
Your job as a prospective franchisee is not to memorize an industry statistic. It is to open Item 20 for the specific brand you are considering, add three columns, divide by one, and see where the answer lands on the curve above. The FTC Franchise Rule makes the franchisor hand you the numbers. Item 20 tells you how many units closed. Item 19 tells you what the survivors earn. Item 21 tells you whether the franchisor is solvent. Item 3 tells you who is suing.
Use them.
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About this analysis The franchise data in this article is drawn from VetMyFranchise's structured analysis of 2,300+ Franchise Disclosure Documents filed with U.S. state regulators. See our data & methodology.
There is no single franchise failure rate. Measured annually from Item 20 of the FDD, the median franchise system closed 4.7% of its franchised units in its most recent fiscal year across the 858 systems VetMyFranchise reconciled. Measured over the life of a loan, roughly 20-25% of franchise-backed SBA loans default. Both numbers hide an enormous spread, so the only figure that matters for your decision is the one in the FDD of the brand you are considering.
About 20-25% of franchise-backed SBA loans default over the life of the loan, typically 7 to 10 years. On an annual basis, 35.2% of the 858 franchise systems we reconciled closed 7% or more of their franchised units in one year and 23.7% closed 10% or more. For context, the BLS reports roughly 20% of all new businesses fail in year one and about 50% within five years.
Of the 858 systems with 25 or more franchised outlets whose Item 20 tables we reconciled, 34% closed more franchised units than they opened in their most recent fiscal year and 37% ended the year with fewer franchised outlets than they started with. A shrinking system is the single loudest warning in the entire FDD.
Against the real distribution, an annual closure rate under 1.9% puts a system in the healthiest quartile and under 4.7% puts it in the better half. Between 4.7% and 9.5% is the third quartile. Above 9.5% puts a brand in the worst quarter of systems, and above 16.2% in the worst tenth. Judge the rate against that curve rather than against a round number.
Open Item 20 of the FDD and find Table 3, Status of Franchised Outlets. Take the most recent year's totals row and add the terminations, non-renewals, and outlets that ceased operations for other reasons. Do not include outlets reacquired by the franchisor, since those keep operating. Divide that sum by the outlets at the start of the year. Then check that outlets at start plus opened minus every loss column equals outlets at end; if it does not foot, the table has a reporting quirk you should ask about.
On an annual Item 20 basis the ranking runs opposite to the usual story. Real estate brokerages posted the highest median annual closure rate at 7.7%, followed by financial services at 7.3%, fitness and wellness at 6.8%, and home services at 6.7%. Food and beverage came in at 3.8% and health and beauty lowest at 2.5%. Food service still carries higher capital at risk per unit, which is why lifetime SBA default rates tell a different story than annual closure rates.
On average franchises have somewhat lower failure rates than fully independent startups, but the gap is smaller than commonly claimed. The BLS reports about 20% of all new businesses fail within the first year, compared to roughly 10-15% for franchises. Franchises also carry higher upfront costs and ongoing fee obligations, so the financial loss from a franchise failure is often larger.
Yes. The FTC Franchise Rule requires every franchisor to disclose unit openings, closings, terminations, non-renewals, reacquisitions, and transfers in Item 20 of the FDD, covering the three most recent fiscal years. It is the most reliable indicator of system health in the document because it is a count, not an estimate.
Not by itself. Across the systems we reconciled, the median closure-to-opening ratio is 0.50 and 64.7% of systems sit at or above 0.30, so that threshold flags the majority of franchising rather than the outliers. A ratio above 1.0, meaning the system closed more than it opened, is the line that actually separates shrinking systems from growing ones, and 34% of systems crossed it.
Reconciliation gaps come from transfers between franchisees, temporary closures that reopen in a later year, relocations counted in the ceased-operations column, and outlets that change format mid-year. Subway's fiscal 2025 totals row, for example, is off by four outlets. About one in four of the tables we parsed failed a strict arithmetic check, which is why we excluded them from the statistics on this page rather than quietly rounding them in.
Not on their own, but they set your baseline. A system closing 1% of units a year is telling you the model works in most markets with most operators. A system closing 15% a year is telling you that a meaningful share of people who did exactly what you are about to do stopped. Pair the closure rate with Item 19 unit economics, Item 21 franchisor financials, and calls to at least 10 to 15 current franchisees from the Item 20 contact list.
This page is part of VetMyFranchise. View all pages: llms.txt · llms-full.txt