Failure, Transfer and Attrition Rates of Franchising Companies Considered

Any good franchising consultant or franchise coach will tell franchise buyers to be very weary of large numbers of franchised outlet failures. This makes perfect sense because if you are going to be a franchisee and spend your hard-earned money purchasing a small business of your own, the last thing you want to do is fail in that business.

This is why I recommend that you stay away from franchisors that have very high attrition or failure rates. Of course, your first question is going to be what would be considered a high failure rate? This is a good question and you're not going to like my answer; it depends!

You see, many low-cost franchise offers have higher failure and attrition rates. This can be due to a number of reasons. The first is if you have not invested much and you do not much to lose and later you decide that it is hard work, you might just change your mind, and either sell the business to someone else or quit.

The second reason is because if you decide to sell your business to someone else even one of your employees, they can easily afford it if it is a small home-based or mobile franchised business. Meaning a drastic increase in transfer rates; now then, high transfer rates, attrition rates, and failures in large expensive franchised outlets that cost over $500,000 would be a lot more serious.

Because these buyers are generally people with good business experience or even accredited investors who are very careful and take the business a lot more serious than a very low-cost franchise owner might.

A little more than a decade ago there was a company that had an extremely high changeover rate, and yet one could get into a new franchise in that system for no money down, finance everything and the business could be operated out of their home. Anybody and everybody who wanted to buy a small business purchase one of their little vans to start their own company.

Since these buyers did not have much skin in the game or very much money invested there were a large number of people who walked away; deciding that maybe they really didn't want to own a business of their own because it was hard work. Well, you can understand what happened. The franchisor got a bad rap due to basic human nature.

Those that bought their franchising worked hard work quite successful. The Franchiser slaughtered the market and the competition with sheer numbers but later had a huge pull back, as transfers, and failures stacked up. I hope you will consider all this and understand the true reality of natural attrition rates.

Lance_Winslow

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