Success Rate of a New Franchise Business vs Independent Start Up

franchise business

If you are considering starting your own business, you must decide if you want to start your own independent start-up business or purchase a new franchises business. Both types of businesses have their own set of advantages and disadvantages that you will need to consider carefully when making this decision. Certainly with an independent start-up you are able to make all the decision how to run the business, but with a franchise you gain brand name recognition and supportive assistance. One of the main points you will need to look at is the success rate of both types of businesses. Below is a look at the success rate of starting a new franchise business vs starting an independent start-up business. 

franchise business Success Rate of a New Franchise Business vs Independent Start UpSuccess Rate of a New Franchise

A new franchise is associated with a main brand name company. The new franchise owner must purchase the rights to open their business from the main company. While the start-up costs are usually less expensive, franchise owners are required to pay royalty fees to cover main company costs, such as marketing and research and development.

The International Franchise Association (IFA) previously did a study that suggested that at many as 95 percent of new franchises were still in business after five years, and 91 percent after seven years. However, some people in the small business industry dispute these facts, stating that these figures are older and inaccurate for today’s market.

As a way to further support IFA’a figures, FranNet completed another survey where it followed 1,260 new franchises from 2006 to 2010 to see what the success rate was. According to this survey, 91 percent of the new franchises were still in business after two year, and 85 percent of these franchises were still in business at the end of four years. Either study shows a very high success rate for new franchise owners.

Success Rate of an Independent Start-up

An independent start-up is a business that is built from the ground up and is not associated with any other brand name company. Typically, the start-up costs for these independent businesses are slightly higher and require the business owner to have an in-depth knowledge of how to manage and operate a business.

Statistics for the success rate for independent start-up are much lower than those for franchise companies. According to the US Bureau of Labor Statistics and the US Small Business Administration, 70 percent of independent start-ups are still in business after two years, and 50 percent of still in business after 5 years. This number drops to just over 30 percent for independent start-ups that last longer than 10 years, and 25 percent for those lasting more than 15 years.

The success rate for a new franchise business seems to be much higher than those for an independent start-up business. In addition, there was a franchise growth rate of more than 40 percent from 2001 to 2005. This represents an annual growth rate of 8 percent, which is one and half times that of other types of businesses. These years also showed a significant growth rate in the number of employees hired by franchise businesses. This large different may be because franchises offer a vast amount of supportive services to the new business owners to help them start their business, which is a service that new start-up owners just do not have.

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