Continuity Rate: One of the Most Important Numbers to Understand When Evaluating a Franchise Opportunity

When considering investing in any franchise opportunity, the brand’s continuity rate should be a big factor in your decision. This metric is a key indicator as to the health of the franchise system and whether it is a system worth considering. While rapid growth can be a positive sign, having prosperous franchisees is the true test of a system’s health. Fast growth does not equal success, but a high continuity rate does.

Continuity rate refers to the number of units open during a period of time which remain continually operating. If there are a high number of closures or non-renewals with a system, the continuity rate will reflect as such. If a system cannot support its growth and franchisees are struggling, this number will be reflected in a low rate. A high continuity rate is evidence of strong support systems. Dedicated field support staff and robust training are examples of ways a franchisor can impact franchisee success.

To calculate a franchise’s continuity rate you need to closely examine Item 20 on the Franchise Disclosure Document (FDD). Find the total number of stores in operation at the beginning of a determined period of time, and then add the number of stores opened during the succeeding years. This will be the number you would expect to be open. Then find the number of units actually operating at the end of the time. You will then divide the actual operating number by the expected number to find the continuity rate.

Using Sport Clips Haircuts’ FDD as an example, Table 3 in Item 20 (page 48) shows the status of franchised outlets over the last three years. The bottom of the table (page 52) you see there were a total of 1,123 franchised stores open at the beginning of 2014. In the next three years, Sport Clips opened 151, 152 and 131 franchised stores, respectively.

If all stores had remained open you would expect there to be 1,557 franchised stores open at the end of 2016 (1,123 + 151 + 152 + 131). Table 3 shows 1,552 franchised stores actually open at that time. This means our three-year continuity rate for our franchised stores is 99.7% (1,552/1,557).

This rate of 99.7% is the result of our dedication to franchisee success. When our Team Leaders win, we win – it is that simple. “We work hard to ensure we are providing team leaders all the resources, tools and training they need to set them up for success,” says Gordon Logan, Sport Clips Founder and CEO. To learn more about the Sport Clips offering, click here.

Whatever franchise you are considering, be sure you are calculating the continuity rate. If the continuity rate is low, you should investigate why. This will help you make a more informed decision about what you are investing in. We believe there is a relationship between continuity rate and satisfied franchisees.

For more questions on continuity rate or any other franchise questions, our franchise professionals will be happy to help. Let’s continue the conversation here.