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

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

You see, many low-cost franchise deals have higher failure and churn rates. This can be due to a number of reasons. The first is if you haven’t invested much and don’t have a lot to lose and then decide it’s hard work, you can change your mind and 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, you can easily afford it if it is a home-based or mobile franchised small business. Which means a drastic increase in transfer rates; Now, high transfer fees, churn rates, and failures at large, expensive franchised outlets costing more than $ 500,000 would be far more serious.

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

Just over a decade ago, there was a company that had an extremely high exchange rate, and yet one could enter a new franchise on that system without any down payment, finance everything, and the business could be operated from home. Anyone and everyone who would like to buy a small business buys one of their small trucks to start their own business.

Since these buyers didn’t have a lot of skin in the game or a lot of money invested, there were a lot of people who walked away; Deciding that maybe they really didn’t want to have 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 who bought his franchise worked hard with quite a bit of success. The franchisor slaughtered the market and the competition with huge numbers, but then had a big setback as transfers and failures piled up. I hope you consider all of this and understand the true reality of natural dropout rates.