The International Franchise Association (IFA) recently published a report titled, The Value of Franchising. As the IFA explains, the report reflects the results of a survey of nearly 3,000 franchisees as well as an “economic analysis comparing franchises with non-franchise businesses” conducted by Oxford Economics. Here, national franchisee attorney Jeffrey M. Goldstein shares his thoughts on the report’s conclusions.
Key Insights from the IFA’s The Value of Franchising
The IFA’s The Value of Franchising report contains several notable statistics. With that said, it is important to keep in mind that the report was commissioned by the IFA—a franchise industry advocacy organization—and its purpose was to identify franchising’s contributions to the U.S. economy. With this in mind, here are some of the key data and conclusions from the report:
1. Franchises Have Higher Job Retention and Pay Progression Rates Than Non-Franchised Businesses
According to the report, “[p]ay progression, job retention, and part-time to full-time transitions are better among workers at franchised businesses compared with non-franchised businesses.” The report also concludes that franchises offer, “benefits at greater rates than, and pay on par with,” competing businesses in the same industries. More specifically, the report states that, “franchise employees [were] 6.5 percentage points more likely to receive sick leave pay and 5.7 percentage points more likely to receive health insurance benefits,” than their counterparts at non-franchised businesses.
2. Franchises Report Sales 1.4 Times Sales Reported By Non-Franchised Businesses
The IFA’s report also states that, according to 2023 data, franchises reported sales 1.4 times those of non-franchised businesses. The disparity was even greater among African American business owners, with “Black or African American franchise firms earn[ing] 2.3 times as much in sales compared with Black-owned non-franchised businesses.”
3. The Majority of Franchisees Are First-Time Business Owners
In the report, Oxford Economics writes that 64 percent of franchisees surveyed self-identified as first-time business owners. According to the report, this “suggest[s] that franchising serves as a reliable entry point into entrepreneurship for many prospective business owners.” The report also states that 30 percent of franchisees surveyed said they would not own a business if they were not franchisees, which means that “without franchising, the U.S. would have an estimated 80,000 fewer businesses, 215,500 fewer local franchise establishments, and 4.0 million fewer jobs.”
4. The Vast Majority of Franchisees Own and Operate Local Businesses
While there are large franchisees that own hundreds or even thousands of individual locations, the IFA’s report indicates that the vast majority of franchisees are individuals who own and operate local businesses. “Most franchisees operate as small business owners who live and work in the communities they serve.” According to the report, approximately 85 percent of all franchisees fall into this category. The report indicates that franchisees purchase approximately 40 percent of their inputs from local suppliers and that 83 percent of franchisees donate to local charities.
An Executive Summary published alongside the IFA’s report also indicates that:
- 82 percent of franchisees own a single location;
- 94 percent of franchisees have less than 50 employees; and,
- 47 percent of franchised brands have 25 units or fewer.
Thus, not only are most franchisees small businesses, but many franchisors are small (or, at least, relatively small) businesses as well. While it has always been the case that franchising offered a pathway to business ownership for individuals, the number of smaller franchise brands is attributable, at least in part, to more brands franchising their concepts in recent years.
5. Less Than One in Four Franchises Are Fast Food Restaurants
While many of the best-known franchise brands are fast-food restaurants, today they account for less than one in four franchised establishments. Professional services account for the largest portion of franchised establishments (35 percent), followed by accommodation and food services (18 percent) and professional services (12 percent). At the opposite end of the spectrum, financial and real estate franchises account for just 1% of all franchised establishments, according to the report.
6. More Than One in Four Franchisees Wanted to Be Their Own Boss
When it comes to why people choose to buy a franchise, the report indicates that the primary motivator is a desire to be one’s own boss. This was the reason given by 28 percent of respondents. “Dissatisfaction with corporate America” was the second most-common reason (22 percent) followed by a desire to pursue prospective franchisees’ passions (13 percent). The report also indicates that 10 percent of franchisees surveyed said that they chose to buy a franchise after being laid off or having their job outsourced, while another 10 percent said they bought a franchise because they were not ready to retire.
7. Most Franchises Have Revenue of $250,000 to $2.5 Million Annually
Finally, the report indicates that 57 percent of all franchisees have annual revenue between $250,000 and $2.5 million, with 29 percent grossing between $1 million and $2.5 million annually. The report indicates that 15 percent of franchisees reported revenue of less than $250,000, while 13 percent of franchisees reported revenue of $2.5 million to $5 million.
Among survey respondents, approximately two-thirds said that access to the franchisor’s network, the franchisor’s training, and the franchisor’s technology platforms were “very important” factors in their ability to generate revenue. More than half of the respondents said advertising and vendor relationships were important factors as well. When buying a franchise, these are key factors to consider—among many others—and prospective franchisees should be able to obtain information about these factors in the franchisor’s Franchise Disclosure Document (FDD), from the franchisor’s representatives, and from current and former franchisees.
Request a Call with National Franchisee Attorney Jeffrey M. Goldstein
Franchisee attorney Jeffrey M. Goldstein has decades of experience helping prospective franchisees navigate the buying process. If you are in the process of buying a franchise, we invite you to contact us for more information. To request a call with Mr. Goldstein, give us a call at 202-293-3947 or tell us how we can reach you online today.
