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Historical Trendsof Key Franchise System Metrics
FACTS & FIGURES
®
THE AUTHORITYON FRANCHISING
Franchise Grade® - Facts & Figures
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The franchise industry, representing the most dynamic engine of small business growth, continues to evolve. Franchisees that invested in a franchise several years ago, would most likely invest in the same franchise today. However, the composition of the franchise investment more than likely differs in key areas such as: franchise fees, royalty rates, territory protections and Item 19 disclosures.
In order to view any differences, Franchise Grade analyzed the changes to the investment offering of 1,551 franchise systems in our database from 2013 to 2016.
Because the data is presented in
averages, we removed the Lodging
Sector from our analysis because of
its larger multi-million-dollar
investment requirements would skew
the averages.
Introduction
Continuing fees stabilized, more Item 19 disclosures
and greater territory protections.
Franchise Grade® - Facts & Figures
Investment Structure
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As expected, we see an increase in the investment range for franchise opportunities. The average franchise fee is up 9% from 2013. The largest increase within the total investment is leasehold improvements, up 16% since 2013. Coincidently, the total initial investment is also up 9%.
0
10,000
20,000
30,000
40,000
0
100,000
200,000
0
100,000
300,000
500,000
2013
2013
2013
Franchise Fee
Leasehold Improvements
Total Investment
2016
2016
2016
+9%
+16%
+9%
Up 9% from $33,648 to $36,669
Up 16% from $159,626 to $185,587
Up 9% from $406,453 to $444,800
Franchise Grade® - Facts & Figures
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Ongoing FeesThere has been a downward trend in the average royalty rate, decreasing from 6.9% to 6.8% between 2013 and 2016. This contrasts with an increase in average national advertising fees from 2.4% to 2.5%. Overall fees remained stable with a slight increase in advertising fund contributions, which indicates that franchisors are putting more focus on building brand awareness through increased advertising expenditures.
2013Royalty Rate
6.9%2013
Avg. NationalAdvertising Fees
2.4%
2016Royalty Rate
6.8%2016
Avg. NationalAdvertising Fees
2.5%
Franchisee RightsOne of the more dramatic changes in the structure of a franchise offering is the increased number of franchise systems that offer protected or exclusive territories. The changes in Item 12 FDD’s is up 19% from 458 franchises in 2013 to 547 franchises in 2016. The initial and renewal term lengths also increased by 2% respectively.
2%InitialTerm
increase19%
Protected orExclusive
Territories
increase2%
RenewalTerm
increase
From 458 to 547 franchises
From 10.2 to 10.4 years
From 8.4 to 8.6 years
Franchise Grade® - Facts & Figures
0
20%
40%
60%
80%
Financial Transparency
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Franchise systems can provide an Item 19 Financial Performance Representation (FPR), but are not required to do so. The number of franchise systems that choose to disclose an FPR continued to increase. This is the largest increase for a key franchise variable - up 24% from 774 franchises in 2013 to 961 franchises in 2016. The percent of franchise systems providing an Item 19 FPR has grown from 50% to 62%.
201350%
201662%
Franchise Systems providing anItem 19 FPR
Up 24% from 774 franchises to
961 franchises
Franchisors continue to compete for qualified franchise candidates who can choose from thousands of franchise investment options. Many franchisors enhance the appeal of their offering in two key areas:
Franchise Territory Protections that provide enhanced franchisee rights Item 19 Disclosures that provide more franchise financial transparency
These enhancements strengthen the appeal of franchising and the potential for more successful franchise operations.
MAPSFranchise
Industry Mapping
MAPSFDDsAll Franchises
All Years
FDDsBENCHMARKData to Enhance
Performance
BENCHMARK
Quality Over QuantityLEADSLEADS
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About Franchise Grade®
Franchise Grade® is The Authority on Franchising. Using our proprietary Franchise Performance Index, we grade over 2,500 franchise systems for investment quality and identify healthy franchises. Every franchise system’s data is published on our website and prospective franchisees use our services to help them find the best investment opportunities. Only the top franchise systems can receive our Made the Grade (MTG)™ designation. Franchise systems using the MTG™ designation attract better candidates and sell more franchises.
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• It is totally fact based• It represents only objective analysis• It is graded and reviewed for franchisee investors• It is the largest database in franchising
Franchise Grade® is the source of franchise industry data for major media publications such as Bloomberg, Forbes, Inc. Magazine, Newsday, Time, Black Enterprise and The Wall Street Journal.
Disclaimer:
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All information contained within this report is obtained by Franchise Grade® from sources believed by Franchise Grade® to be reliable and accurate. Any forecasts, calculations or predictions contain within this report are believed to be accurate as the data and methods will allow. Due to the possibility of human or mechanical error, the information within this report is provided “as is” and no warranty of any kind is provided.
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