Franchise 5-Year Survival Rates

You have probably heard the claim that 90-95% of franchises succeed. It gets repeated in sales presentations, broker websites, and even business textbooks. It is also not true. The figure traces back to a voluntary, unaudited survey of franchisors from the 1980s that the Small Business Administration (SBA) has repeatedly asked the industry to stop citing.

If you are a prospective franchisee or a current owner weighing a second or third unit, franchise 5-year survival rates are one of the most useful metrics you can study, but only if you look at real numbers.

Why Franchise 5-Year Survival Rates Matter

Plenty of businesses survive their first year on startup capital and enthusiasm. The five-year mark is where the truth comes out.

According to Bureau of Labor Statistics data analyzed in 2025, about 22 percent of new US businesses close within their first year, and roughly 49 percent close within five years. In other words, the five-year mark is where nearly half of all businesses wash out. Franchises tend to look better than independents in year one, since they open with a proven playbook, brand recognition, and franchisor support. But that early advantage narrows over time. Five years is also long enough to expose problems that a single good year can hide:

• Whether unit economics work after royalties and fees, not just before them
• Whether the franchisor's support holds up well after the grand opening
• Whether demand for the concept is durable or a fad
• Whether the territory can actually sustain the unit

For expansion-minded owners, the same logic applies in reverse. Before you sign for unit two, your own five-year trajectory and your brand's system-wide survival numbers should both look healthy.

The Numbers: Brands and Industries With Strong and Weak Track Records

No government database directly tracks franchise survival by brand. The closest thing is SBA loan performance data, obtained through public records requests and widely analyzed. Since SBA 7(a) loans finance a large share of franchise purchases, default rates work as a reasonable proxy for unit failure.

A few things stand out from the available data.

• The averages hide the real story: A U.S. Bureau of Labor Statistics (BLS) analysis of SBA lending found franchise loans defaulted at an average rate of about 9.9 percent between 2010 and 2021, in the same neighborhood as the roughly 7.5 percent rate across the broader SBA small business portfolio. That average blends outstanding systems with weak ones, which is actually good news for a careful buyer: the strongest franchise systems perform far better than any average suggests, and the data to identify them is public. What you buy matters far more than the decision to franchise at all.
• Popular franchise sectors hold up well: The same BLS data, broken out by industry, shows five-year survival rates for the sectors where most franchising happens. Nearly all of them beat the 51.4 percent all-industry average:

Food service actually posts one of the lowest first-year failure rates of any industry at 14.7 percent, and nearly six in ten food service businesses are still operating at year five. Food concepts face real challenges, mainly thin margins and competition, but the doom-and-gloom reputation is undeserved.

Franchise-specific sector patterns show up in loan data. SBA default analyses found that sectors with recurring revenue, B2B contracts, or licensing barriers hold up best, while trend-driven concepts like tanning salons and boutique fitness clustered at the weaker end. The takeaway is to ask whether demand is durable or riding a boom cycle.

Investment level correlates with survival. Entrepreneur's analysis of its franchise data found brands with initial investments above $25,000 typically fail at under 5 percent annually, while the $15,000 to $25,000 tier fails at 9.3 percent.

The likeliest reason is capitalization: higher-investment brands tend to require, and therefore attract, better-funded owners who can absorb a slow stretch instead of being sunk by it. What protects a unit is the size of the owner's cushion relative to the concept's cost, not the sticker price alone.

One note of caution: the gap between systems inside a sector is wider than the gap between sectors. SBA records show default rates from under 5 percent to above 40 percent, often within the same industry. Sector data tells you the terrain. The FDD tells you about the specific vehicle you are buying.

Where to Find Survival Data in the FDD

Every franchisor must give you a Franchise Disclosure Document before you buy. Two sections do most of the work here.

Item 20 is the closest thing to a published survival rate. It lists three years of system data: units opened, units closed, terminations, non-renewals, and transfers. A few ways to read it:

• Closure-to-opening ratio: If a system opens 100 units and closes 30 in the same period, that is a warning sign. Analysts who work with FDD data generally treat a ratio above 0.3 as a red flag.
• Annual closure rate: Closing 3 percent or fewer of total units per year suggests a healthy system. Above 7 percent signals elevated risk.
• Transfers: A transfer means an owner has sold their unit. A few transfers are normal. A wave of them can mean owners are heading for the exits before things get worse, since a sale looks better on paper than a closure.

Item 20 only covers three years, so pull FDDs from multiple years if you can. Stacking several editions side by side gets you a real five-year picture. FDDs are public records in registration states like Minnesota, Wisconsin, and California, and their state portals let you download past filings for free.

​Item 19 covers financial performance representations. Not every franchisor provides one, and that itself tells you something. Where available, compare median unit revenue to the full cost stack in Items 5 through 7. If the median unit cannot generate meaningful owner income after royalties, rent, labor, and debt service, survival statistics will eventually reflect that.

Beyond the FDD, use the franchisee lists that Item 20 requires franchisors to disclose, and call both current and former owners. Current franchisees tell you what it takes to succeed in the system. Former franchisees tell you what tripped them up, and their answers are usually the most valuable due diligence you can get for free.

What Separates Brands That Last From Brands That Don't

Survival rates are outputs. They tell you what has already happened to other people's investments. The inputs below are what produced those numbers, and every one of them is something you can evaluate before you sign, not after.

• Unit economics after fees: A concept can post strong gross revenue and still squeeze its owners once royalties (typically 4 to 8 percent of sales) and marketing fund contributions come out. Strong margins compound over five years, and so do weak ones.
• Capitalization: Undercapitalized owners fail during slow seasons, whereas well-funded owners simply endure them. The investment-tier data above is really a capitalization story: cheap concepts attract buyers with no cushion.
• Franchisor quality: Training, site selection help, supply chain leverage, and responsiveness when a unit struggles all show up in survival data eventually. Franchisee satisfaction surveys and litigation history (Item 3 of the FDD) are useful leading indicators.
• Concept durability: Frozen yogurt, tanning, and boutique fitness all had boom cycles that ended badly for late-arriving franchisees. Ask whether demand for the product will exist in year five, not just whether it exists now.
• Owner fit and involvement: Absentee models fail more often than owner-operated ones in most categories. If a brand pitches passive income, know that you need to trust your operations manager more than you'd trust yourself.
• Territory and site: A great brand in a saturated or poorly matched territory produces the same closure statistic as a bad brand. Item 12 (territory rights) deserves as much scrutiny as the financial items.

Survival Favors the Prepared Franchisee

Franchise 5-year survival rates vary far more by system than by sector, and the traits of the survivors are visible in advance: honest Item 20 numbers, an Item 19 that holds up against real costs, consistent stories from former franchisees, and proper capitalization.

Franchising rewards preparation more than almost any other path into business ownership, and that preparation does not have to happen alone. Franchise.com can help you match your budget, skills, and goals to systems with the track record to back their pitch, so the five-year survival curve becomes a statistic you choose your position on, whether it is your first unit or your fourth.

Start your franchise search today.