Franchise turnover rate measures the percentage of franchised outlets that exit the system within a specific year. Turnover includes closures, terminations, non renewals, franchisee transfers, reacquisitions and other forms of system attrition. The metric is calculated using the data required in Item 20 of the Franchise Disclosure Document.
Turnover rate is a key indicator of franchise system health, stability and franchisee satisfaction.
Turnover rate is one of the most important indicators reviewed by:
prospective franchise buyers
franchise brokers
lenders
private equity groups
franchise regulators
state examiners
High turnover may signal:
insufficient support
poor profitability
weak operations
inadequate training
mismatched franchisee profiles
problematic unit economics
lack of proven system
Low turnover generally signals a stable, well supported franchise system.
While each system may define turnover differently, a common formula is:
Turnover Rate =
(Number of franchised outlets that exited the system during the year)
÷ (Total franchised outlets at the start of the year)
Exits may include:
closures
terminations
non renewals
reacquisitions
transfers (depending on definition)
Franchisors must report all required categories in Item 20.
In franchise registration states, examiners frequently review turnover rate as a proxy for system health. While there is no legally mandated threshold, turnover exceeding roughly ten percent of the system in a single year often raises concerns, particularly when:
multiple units closed without being resold
terminations or non renewals are unusually high
the franchisor reacquired several units
turnover has increased year over year
turnover contradicts Item 19 financial performance claims
When turnover is unusually high, state examiners may:
request explanations or corrective disclosures
issue comment letters requiring clarification
ask for additional risk factors
require supplemental disclosures to protect prospects
High turnover is one of the most common reasons an examiner pauses, questions or heavily scrutinizes an FDD.
Franchisors analyze turnover rate to:
evaluate whether support structures need improvement
assess profitability trends
determine training or operational gaps
refine franchisee qualification criteria
adjust territory designs
understand market level risks
support Item 19 context
Turnover trends also heavily influence franchise sales messaging and validation.
Prospects often review turnover before anything else in the FDD. High turnover can:
signal instability
reduce buyer confidence
undermine Item 19 representations
lead to more aggressive buyer questions
require additional disclosures
Strong turnover numbers improve credibility and franchise development efficiency.
Rates vary by industry, but many regulators view double digit turnover as a potential red flag.
Closures, terminations and non renewals do. Transfers may or may not, depending on the franchisor’s methodology.
Because high turnover can indicate poor system performance or inadequate franchisor support.
Yes. High turnover can undermine the credibility of earnings claims if the system is struggling operationally.
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FDD Renewal
Material Change
Franchise Examiner
Franchise Exemption
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Non Registration State
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Last updated: November 26, 2025
