Franchise Turnover Rate: How to Calculate It From Item 20 Before a Candidate Does

Franchise turnover rate is the share of a system's franchised outlets that left the system or changed owners during a year, and you can calculate it from two tables in the disclosure document your brand already publishes. Add the terminations, non-renewals, reacquired outlets and other closures from Item 20 Table 3, then divide by the outlets you started the year with. Do the same with the Table 2 transfers. Candidates will run both divisions before they dial a single validation call.

Item 20 of the Franchise Disclosure Document reports counts, not rates, so the percentages are yours to compute. The Federal Trade Commission tells buyers that Item 20 provides charts showing growth and owner turnover in the franchisor's system, which means a prospect is reading the same tables your development team filed. This post gives the formulas, a worked example with the arithmetic shown, and a scorecard you can run on your own numbers.

How do you calculate franchise turnover rate from Item 20?

Use three ratios across the last three fiscal years. Exit rate is Table 3 terminations, non-renewals, reacquired outlets and other closures divided by outlets at the start of the year. Transfer rate is Table 2 transfers divided by the same starting count. Other-closure share is the ceased-operations column divided by total exits.

Item 20 covers three fiscal years, so one document gives you three data points per ratio. The tables come from 16 CFR 436.5(t), the federal FTC Franchise Rule, as shown in the eCFR current through October 22, 2026. Table 2 lists transfers, which the rule defines as the acquisition of a controlling interest in a franchised outlet during its term by someone other than the franchisor or an affiliate. Table 3 tracks outlets at the start of the year, outlets opened, terminations, non-renewals, outlets reacquired by the franchisor, outlets that ceased operations for other reasons, and outlets at year-end.

What the tables count, and what they leave out

Table 3 has four exit columns, and the last one deserves the most scrutiny. Terminations, non-renewals and reacquisitions each describe a specific event. The ceased-operations column covers outlets that closed for other reasons, so any closure that is not one of the other three lands there by elimination. When that column grows faster than the others, the table shows outlets disappearing without saying why.

Table 2 has the opposite problem. A transfer means a controlling interest changed hands during the term, so a retirement sale to a strong operator and a handoff from a struggling owner both count as one transfer. The FTC's consumer guide tells buyers that when outlets in their area have closed or moved to new owners or back to the franchisor, the cause could be problems with franchisor support or franchises that are not profitable. Read transfers next to exits, never alone. The same normalizing habit applies to litigation counts, which is why comparing Item 3 case counts against unit count matters: a raw number means little until it is divided by system size.

A worked example: a 200-outlet system over three years

This is a hypothetical system, not any real brand's disclosure. The column values are invented to show the arithmetic.

Year 1: 180 outlets at the start, 24 opened, and 12 exits (4 terminations, 2 non-renewals, 1 reacquired, 5 other closures). Exit rate is 12 divided by 180, or 6.7 percent. With 12 transfers, transfer rate is also 6.7 percent. Year-end count is 180 plus 24 minus 12, or 192.

Year 2: 192 outlets at the start, 27 opened, and 19 exits (6 terminations, 3 non-renewals, 2 reacquired, 8 other closures). Exit rate is 19 divided by 192, or 9.9 percent. With 18 transfers, transfer rate is 9.4 percent. Year-end count is 192 plus 27 minus 19, or 200.

Year 3: 200 outlets at the start, 30 opened, and 25 exits (7 terminations, 3 non-renewals, 3 reacquired, 12 other closures). Exit rate is 25 divided by 200, or 12.5 percent. With 26 transfers, transfer rate is 13.0 percent. Year-end count is 200 plus 30 minus 25, or 205.

Now compare the headlines. Terminations alone were 2.2, 3.1 and 3.5 percent of starting outlets, which reads as a slow drift. Net growth fell from 6.7 percent to 2.5 percent even though openings rose from 24 to 30. Other closures were 42 percent of exits in year 1 (5 of 12), 42 percent in year 2 (8 of 19) and 48 percent in year 3 (12 of 25). Add exits and transfers and about one outlet in four left or changed owners in year 3 (51 divided by 200, or 25.5 percent), up from 13.3 percent in year 1 (24 divided by 180). Treat that sum as approximate, because an outlet that transfers and then closes in the same year appears in both tables.

Is a high franchise transfer rate good or bad?

Neither, on its own. A transfer records that a controlling interest changed hands during the term, which covers both a retirement sale to a stronger operator and a handoff from a struggling owner. Judge the transfer rate against the exit rate. Transfers rising while exits stay flat points to owners cashing out cleanly. Both rising together points to churn.

Buyers and sellers read the same numbers when they price a unit, and our piece on what sets a franchise resale multiple covers how remaining term and transfer approval enter that price.

A three-line churn scorecard for development teams

This scorecard is an analysis framework, not a regulatory test. The thresholds are rules of thumb to set against your own history.

Line 1, exit rate trend. Compute the exit rate for all three years. Flag the brand if it rises two years in a row, as it does in the example (6.7, 9.9 and 12.5 percent), even when each single year looks tolerable.

Line 2, other-closure share. Divide the ceased-operations column by total exits. Flag it when it passes half, because that column explains the least. The example reaches 48 percent in year 3, and 13 closures out of 25 would have crossed the line.

Line 3, former-franchisee reconciliation. Item 20 must also list franchisees whose outlets ended in the most recent fiscal year, or who have not communicated with the franchisor within 10 weeks of the disclosure issuance date. Compare the length of that list with the Table 3 exit count. Multi-unit owners explain some gaps, since one person can hold several outlets, but a large unexplained gap is a question a candidate will raise on a validation call. Our post on how candidates build their own validation call list shows how that list gets assembled from Item 20.

Why will candidates calculate this before you do?

Because the FTC tells them to. Its business blog says Item 20 provides charts showing growth and owner turnover, advises buyers to investigate closures in their area, and says it is worth tracking down former franchisees listed there. A prospect following that advice will compute your exit rate, then call the people behind it.

For outlets the franchisor bought back, the FTC's consumer guide adds that the franchisor must tell buyers who owned and operated the outlet for the last five years, and suggests contacting as many previous owners as possible. A reacquired outlet is therefore a documented trail a motivated candidate can follow.

Run it on your own Item 20 before a candidate does

Pull the last three years of your own Item 20 this week and compute the three lines. If the exit rate has risen two years running, write down the reason for each other closure before the next discovery day, because that is the first question the numbers invite. Teams that keep candidate, unit and former-franchisee records in one system, such as Revscale's franchise development platform, can produce these ratios on request instead of rebuilding them from three PDFs. You cannot change a franchise turnover rate in a quarter, but you can explain it before anyone asks. This is general information, not legal, tax or financial advice; confirm specifics with a qualified advisor.