Earnings Claims of Top Franchises Revealed

Earnings Claims of Top Franchises Revealed

  • Anytime Fitness
  • CruiseOne
  • Firehouse Subs
  • Jimmy John's
  • Massage Envy
  • Menchie's
  • Orange Leaf Frozen Yogurt
  • Planet Fitness
  • The UPS Store
  • Yogurt Land
  • And Hundreds More...

No, thanks. I'm not interested in uncovering the actual earnings of hundreds of franchises at this time.

Forbes Magazine’s Top 20 Franchises for the Buck: The Controversy

by Franchise Chatter on March 8, 2012

in Best of List

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Don't Invest in a Franchise Until You Check Out This List

Putting out a list of top franchises is a tricky undertaking.  I should know — I’ve been on the receiving end of some pointed criticism for a few of the choices I’ve made in the past.  But that just comes with the territory, and I welcome the debate from all sides.

In my experience, for as long as the ranking methodology makes sense and the list is not intended as a mere marketing tool, people tend to respect a publication that takes a stand and expresses a definite point of view.

I appreciate rankings that are based on quantitative measures. But it’s so important for the criteria to be sound, because the results are only as reliable as the choice of inputs.  As they say, garbage in, garbage out.

In this particular case, Forbes magazine, with the help of Robert Bond, chief executive of the World Franchising Network (a franchise database) and publisher of Bond’s Franchise Guide, took a sample of 110 of the most established franchise names and ranked them according to five variables:

  • average initial investment (franchise fees plus equipment costs)
  • total locations (the more the better)
  • closure rate (the number of closings in the last three reported fiscal years divided by the total number of existing locations)
  • growth in the number of U.S. outlets in the last three years
  • and the number of training hours as a percentage of startup costs (the more support from the home office, the better)

Overall footprint and survival rates carried the most weight.

This list obviously favors well-known franchises with large footprints.  Whether these opportunities offer the best bang for your buck is questionable.

But the real root of the controversy is Forbes’ emphasis on franchise closure rates.  Based on its FDD, Snap-on Tools was considered to have had zero franchise closures in the past 3 years, and this propelled it to the very top of the rankings.  Critics of Snap-on (and other mobile tool franchises) on the other hand, claim that, while it may be true that there were no franchise closures during that period, more than 1000 franchises were reacquired (for a small amount) by the franchisor only to be re-sold to new franchisees — a negative practice called “churning”.

In response to the criticism, J.J. Colao, the writer of the original Forbes article, posted a follow-up piece where he explains his ranking methodology in greater detail.  He says, “Because of the ambiguous nature of reacquisitions, we did not include this figure in our tally of closures over a three-year period. In general, this worked well. For mobile tool dealers like Snap-on, this turned out to be a significant advantage. Without fixed locations to shut down, Snap-on generally takes back struggling franchises for a small cash payment or the forgiveness of debt. Very few are ever terminated.”

With refreshing humility, he goes on to say, “If the goal was to express the health of a system, then stating that the Snap-on franchisees experienced zero closures from 2008 to 2011 is misleading. Clearly, franchisees failed but were not accounted for under conventional methods. For the future, a better metric may indicate churn, whereby we take all transfer events, including reacquisitions, into account.”

So, there you have it.

Here is Forbes Magazine’s Top 20 Franchises for the Buck.  What do you all think?

1.  Snap-On Tools

2.  7-Eleven

3.  Aaron’s

4.  Panera

5.  Servpro

6.  McDonald’s

7.  Liberty Tax Service

8.  Merry Maids

9.  The Maids International

10.  Jimmy John’s

11.  Papa Murphy’s

12.  Jack in the Box

13.  Dunkin’ Donuts

14.  Burger King

15.  Supercuts

16.  Edible Arrangements

17.  Great Clips

18.  Anytime Fitness

19.  Pronto Insurance (Ambrosio’s note:  Why was Pronto Insurance included in the sample, which supposedly consists of 110 of the most well established franchises?)

20.  Massage Envy

Franchise Matching Quiz

{ 1 comment… read it below or add one }

Todd A. Peterson March 8, 2012 at 6:38 am

Dear franchise chatter,

What is amazing to me is that Entrepreneur Magazine depicts Matco Tools as #1 in their Franchise Ranking! Forbes depicts Snap-On #1 in its Franchise Rankings! So who is telling the truth???

Why would a FRANCHISOR that has Churn in the HUNDREDS per year be considered a SUCCESSFUL FRANCHISE?

So, lets say Vetfran and Franchisors who have targeted our troops as their next VICTIMS get 1000 new recruits for their FRANCHISES. Companies like Matco and Snap-On who have a high FAILURE rate and are ACCUSED of CHURNING DISTRIBUTORS with their FAILING routes have a 30% failure rate. Matco I believe would be higher because their SBA Loan failure rate is 36%.

Does Franchise Chatter, Vetfran, the IFA, our Government, Matco or Snap-On bother to tell our troops that their Franchise Opportunity is ALMOST a 50/50 chance of “JUST STAYING IN BUSINESS”???

Remember that we are just seeing FAILURE RATES! Not how many Franchisees who are SO heavily invested that they HAVE to stay in business and try to pay their DEBT off and KEEP their CREDIT in good standing not making a profit!


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