Item 20: Outlets and Franchisee Information is one of the most important items in a Franchise Disclosure Document (FDD). Item 20 data highlights the Franchisee Turnover Rate (FTR) of any franchise system.
FTR is defined as the total amount of turnover within a franchise system. It is calculated by combining franchisee transfers, terminations, non-renewals, reacquisitions and ceased operations for other reasons divided by the total number of franchised outlets open.
The Franchisee Turnover Rate is not inherently negative or positive. But it is a measurement by which we can benchmark outlet activity. Transfers, terminations and ceased operations are the three primary influencers of franchisee turnover.
If you are a prospective franchisee, you will need to analyze and compare the various components of franchisee turnover separately and as a combined value. Each variable needs to be scrutinized to understand the underlying causes of turnovers and whether future success attributes or investment risks are associated with that variable. In addition, you should seek out ex-franchisees who have transferred to ensure their transfers were considered successful. This due diligence can provide a better understanding of your ability to capitalize on your franchise investment upon exit.
We have completed a study on the changes in Ongoing Fees in the franchise industry using our data from 2013 – 2016 to publish the report.
A Franchise Disclosure Document (“FDD”) presents key components of the franchise program including the obligations of the franchisor and franchisees.
As franchise system development becomes more competitive franchise systems are employing a new strategy to grow their brand and increase franchise sales.
The composition of the franchise investment differs in key areas such as: franchise fees, royalty rates, territory protections and Item 19 disclosures.
Data has become essential to having a successful franchise development team. Those that maximize the power of data will sell more franchises.
When reviewing an FDD, we always keep our eyes out for any errors. The error that is the most troublesome for us is when we see Item 20 errors.