This week’s Franchise Facts and Figures presents our study of Franchisee Turnover Rates over 5 years. The 5-Year average FTR for the franchise industry as a whole is 10.23%. The Retail Food Sector 5-Year average FTR is 12.61%. This is more than 2% higher than the industry as a whole, but only slightly higher than the Real Estate sector at 12.09%. Is this rate high?
The franchisee turnover rate can be an indicator of a system’s overall health. By itself, the FTR is not inherently negative or positive but it can be affected by a number of factors like: franchise system performance, franchise agreement initial or renewal terms expiring or an unhealthy franchise system. At FranchiseGrade.com, we use the FTR to quantify and benchmark franchise outlet activity and changes.
The five components of a Franchisee turnover are defined as follows:
Transfer: The acquisition of a franchise outlet, during the term of its franchise agreement by a person or company other than the franchisor. This represents the sale of a franchise by an existing franchisee to a new franchisee.
Termination: the termination of a franchise agreement by the franchisor for cause or by mutual agreement, prior to the end of the franchisee term.
Non-Renewal: failure to renew the franchise agreement for a franchise outlet upon the expiration of the current franchise term. A franchisee may choose not to apply for renewal, while the franchisor reserves the right to deny an application for renewal.
Reacquired: The return of a franchise outlet, by a franchisee, during the agreement term, to the franchisor. Reacquisition may be utilized by the parties as a method for resolving a dispute or avoiding litigation.
Ceased Operation: Closing business operations for a reason other than transfer, termination, non-renewal, or reacquired by the franchisor. This includes abandonment of the outlet by a franchisee and inactive franchisees (primarily in the case of home based franchise systems).
The FTR Calculation takes these factors and divides them by the number of franchised outlets opened, resulting in the annual turnover rate.