Learn how to read FDD Item 20 franchise unit data. Calculate retention rates, spot red flags in closures, and use the franchisee contact list for validation.
Most prospective franchise buyers focus on Item 7 (costs) and Item 19 (earnings). Those are important, but Item 20 is arguably the single most actionable section of the entire Franchise Disclosure Document — and it’s the one most buyers skim over.
Item 20 contains two critical things:
The statistical table tells you whether the franchise system is healthy and growing. The contact list gives you the phone numbers to verify everything the franchisor has told you. Together, they form the backbone of your due diligence.
Item 20 typically includes five tables covering a three-year period. Here’s what each one reveals:
This table shows the total number of franchised and company-owned outlets at the start and end of each fiscal year, along with the net change.
| Year | Start of Year | End of Year | Net Change |
|---|---|---|---|
| 2023 | 750 | 810 | +60 |
| 2024 | 810 | 849 | +39 |
| 2025 | 849 | 920 | +71 |
What to look for: Consistent year-over-year growth is the strongest positive signal. Flat or declining total counts warrant investigation.
This table shows how many franchise units changed ownership during each year — meaning one franchisee sold to another.
Why it matters: A high transfer rate can mean:
The transfer number alone doesn’t tell you which scenario applies. You need to call transferring franchisees to understand their reasons.
This is the most important table in Item 20. It breaks down exactly what happened to franchise units during each fiscal year:
| Category | What It Means | What It Signals |
|---|---|---|
| Outlets at Start of Year | Units operating on January 1 | Baseline |
| Outlets Opened | Brand new units that opened | Growth and demand |
| Terminations | Franchisor ended the agreement | Possible conflict or non-compliance |
| Non-Renewals | Franchisee chose not to renew | Potential dissatisfaction |
| Reacquired by Franchisor | Corporate bought back the unit | Could signal strategic shift or struggling unit |
| Ceased Operations (Other) | Closed for any other reason | Catch-all for failures |
| Outlets at End of Year | Units operating on December 31 | Current health |
Here’s what the numbers look like for a franchise system with strong fundamentals — based on patterns we see in our database of 1,609 FDDs:
Healthy system:
Concerning system:
Our analysis of 1,609 franchise systems reveals wide variation in unit health:
| Growth Pattern | Example | Opened | Closed | Net |
|---|---|---|---|---|
| Strong growth | Jersey Mike’s | 318 | 5 | +313 |
| Moderate growth | Scooter’s Coffee | 99 | 20 | +79 |
| High churn | Coverall | 526 | 446 | +80 |
| Net decline | Applebee’s | 0 | 82 | -82 |
| Severe decline | Chem-Dry | 14 | 101 | -87 |
The second half of Item 20 provides contact information for:
You should contact a minimum of 15-20 current franchisees before making your decision — this is the franchise validation process in action. When selecting who to call:
Former franchisees are often more candid than current ones because they have no ongoing relationship with the franchisor to protect. They can tell you:
Pro tip: If the Item 20 former franchisee list is unusually long relative to the system size, that’s a red flag worth investigating.
You can derive several important metrics from Item 20 data:
Formula: (Units at End of Year - Units Opened) / Units at Start of Year x 100
A retention rate above 95% is strong. Below 90% warrants concern. Below 85% is a significant red flag.
Formula: (Units at End of Year - Units at Start of Year) / Units at Start of Year x 100
Compare this to the industry average and the franchise’s own historical trend. Accelerating growth is more promising than decelerating growth, even if the absolute numbers are similar.
Formula: (Terminations + Non-Renewals + Reacquisitions + Ceased Operations) / Units at Start of Year x 100
This captures all the ways franchisees leave the system. A turnover rate above 10% per year means the franchise is losing one in ten operators annually — a rate that should prompt serious questions.
Formula: Total Closures / Total Openings
Here are the warning signs to watch for when reviewing Item 20:
If the system had 500 units three years ago and now has 420, the franchise is shrinking. That doesn’t necessarily mean it’s a bad business, but you need to understand why.
Terminations mean the franchisor ended the franchise agreement — often for non-compliance, failure to pay royalties, or breach of contract. A few terminations are normal. A pattern of double-digit terminations suggests the franchisor is either poorly selecting franchisees or has an adversarial relationship with its network.
If a franchise reports opening 50 units per year for three years (150 total) but only has 120 operating units, that means 30 units from recent openings have already failed. New unit failure is the most damaging signal in franchise data.
The FTC requires complete contact information in Item 20. If phone numbers are missing, addresses are incomplete, or the list seems suspiciously short, the franchisor may not be in full compliance — a red flag on its own.
Some franchisors include language in their agreements restricting franchisees from speaking negatively about the brand. While they can’t legally prevent you from contacting franchisees listed in Item 20, any sign of communication suppression should raise concerns.
Here’s how to systematically analyze Item 20 for any franchise you’re evaluating:
Step 1: Calculate the three-year net unit trend (growing, flat, or shrinking?)
Step 2: Calculate the retention rate and turnover rate for each year
Step 3: Look for acceleration or deceleration in openings
Step 4: Count terminations and non-renewals as a percentage of total units
Step 5: Build a call list of 20-30 franchisees from the contact list (mix of current and former)
Step 6: During your calls, ask franchisees if the Item 20 numbers align with their on-the-ground experience
Step 7: Compare the franchise’s growth metrics against industry benchmarks and competitors
Item 20 isn’t glamorous. It doesn’t have the financial allure of Item 19 or the sticker shock of Item 7. But it’s the most honest section of the FDD because it’s based on verifiable, auditable facts — and it gives you the tools (the contact list) to verify everything else.
Ready to put Item 20 data to work? Browse our franchise library to see unit counts and growth data for 2,000+ franchise systems, or use the comparison tool to benchmark multiple brands side by side.
Item 20 of the Franchise Disclosure Document contains two things: statistical tables showing unit openings, closures, terminations, and transfers over three years, and a complete contact list of every current and former franchisee. It's the primary source for franchise health data and validation contacts.
You should contact a minimum of 15-20 current franchisees and 5-10 former franchisees. Select randomly from the Item 20 list rather than relying on the franchisor's recommended contacts. Diversify by geography, tenure, and performance level.
A retention rate above 95% is strong, meaning less than 5% of units closed during the year. Below 90% warrants concern, and below 85% is a significant red flag. Calculate it by comparing units at year end (minus new openings) against units at year start.
Units close for various reasons: financial failure, franchisee retirement, personal circumstances, franchisor termination for non-compliance, non-renewal of the agreement, or strategic reacquisition by the franchisor. Item 20 categorizes closures by type so you can distinguish between voluntary exits and failures.
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