If you are learning how to choose a franchise, Item 19 of the Franchise Disclosure Document deserves serious attention.
It is also one of the most misunderstood sections in the entire FDD.
Item 19 can help you evaluate a franchise’s financial potential. It can also create false confidence if you focus on one impressive number, ignore the assumptions, or mistake revenue for profit.
The goal is not to find the highest earnings claim. The goal is to determine whether the opportunity can support your investment, your market, your management plan, and your long-term lifestyle goals.
A franchise should be evaluated as a capital deployment decision and a transferable asset, not simply as a job with a logo.
What Is Item 19?
Item 19 is formally called the Financial Performance Representation.
It is the section where a franchisor may disclose information about the financial performance of franchised or company-owned units. Depending on the franchise system, it may include:
- Gross sales or revenue
- Gross profit
- Operating expenses
- Net income
- EBITDA or another profitability measure
- Performance by location type, size, or market
- Results from mature units or newer locations
Franchisors are not required to include Item 19 in the FDD.
However, if a franchisor or franchise seller makes financial performance claims, those claims generally must be included in Item 19 and supported by a reasonable basis. A salesperson should not tell you that franchisees typically earn a certain amount if the claim does not appear in the FDD.
The Federal Trade Commission’s FDD guidance explains that financial performance claims belong in Item 19. Treat off-document earnings promises as a serious warning sign.
The Wrong Question, “What Is the Average Unit Making?”
Most buyers begin with the wrong question.
They ask, “What is the average unit making?”
The better questions are:
- What does the median unit generate?
- How many locations are included?
- What percentage of the entire system does that represent?
- Are the results based on mature units?
- Are closed or underperforming locations excluded?
- Is the figure revenue, gross profit, or actual net profit?
- Does the result apply to my market and operating plan?
The word “average” can sound precise while hiding a wide range of outcomes.
Median Versus Average
Suppose nine locations each produce 80 revenue units, while one location produces 500 revenue units.
The average is 122 revenue units.
The median is 80 revenue units.
The average is pulled upward by one unusually strong location. The median shows the middle result, with half of the locations performing above it and half below it.
That is why the median is often a more useful starting point for a conservative business model. An average can be informative, but it should never be treated as a guaranteed or typical outcome without reviewing the full distribution.
If an Item 19 includes quartiles, high and low results, or the percentage of units reaching a benchmark, study those figures carefully. The spread may tell you more than the headline number.
Sample Size Can Create False Confidence
Sample size matters.
Imagine a franchise system with only 20 locations. The franchisor reports that 90 percent of locations exceed a particular revenue benchmark.
That sounds impressive. But it means only 18 locations reached the benchmark. A handful of locations can heavily influence the result, especially in a small or young system.
A small sample is not automatically unreliable. It does mean you need more context.
Ask:
- How many total units are in the system?
- How many units were included in Item 19?
- What percentage of all locations does that represent?
- How many locations were excluded?
- How many units closed during the reporting period?
- Were company-owned and franchised units combined?
- Are the strongest markets overrepresented?
An Item 19 that covers most of the system, provides a clear methodology, and shows a broad range of results is generally more useful than a selective report built around a small group of high performers.
The Maturity Curve Changes Everything
Many Item 19 disclosures focus on mature locations.
That makes sense for comparison, but it can create a major planning mistake. A mature location may have an established customer base, trained employees, refined processes, and stronger local awareness.
A new location has none of those advantages on day one.
This is why you should request a year one, year two, and year three breakdown whenever possible. If the FDD does not provide one, ask the franchisor whether it can provide additional information consistent with its disclosure obligations.
Your financial model should reflect the ramp-up period, including:
- Pre-opening expenses
- Hiring and training
- Marketing before customer volume stabilizes
- Initial operating inefficiencies
- Delayed owner compensation
- Working capital needs
- Time required to build recurring demand
Modeling year one using a mature-unit result is one of the fastest ways to create unrealistic expectations.
The question is not merely whether the franchise can perform well eventually. The question is whether you can responsibly fund and manage the path to maturity.
Revenue Is Not Profit
This distinction is essential.
Many Item 19 disclosures show revenue only. Revenue tells you how much money came into the business. It does not tell you how much the owner kept.
Revenue does not automatically account for:
- Labor
- Rent
- Cost of goods
- Insurance
- Royalties
- Brand fund contributions
- Technology fees
- Repairs and maintenance
- Marketing
- Owner compensation
- Loan payments
- Taxes
Industry data indicates that many franchisors disclose revenue, while a much smaller share disclose operating expenses or profitability. Roughly a third of franchisors may omit Item 19 entirely.
If a franchisor reports revenue but not profit, do not fill the gap with optimism. Build the missing expense structure yourself using information from the FDD, qualified professionals, and current franchisees.
A revenue number without a local P&L is not a business plan.
Run the Minus 15 Percent Stress Test
Once you have a local model, stress-test it.
Reduce projected revenue by 15 percent and review the outcome.
Then ask:
- Does the business still cover normal operating expenses?
- Can it support a qualified manager?
- Can it handle slower customer acquisition?
- Can it service debt without relying on personal funds?
- Can the business continue building transferable value?
- Does the model still support your lifestyle goals?
If the business only works at the most optimistic revenue number, it does not work yet.
This is not pessimism. It is responsible capital planning.
Your model should also account for a slower ramp, higher labor costs, unexpected repairs, local competition, and the possibility that you will need to remain more involved than originally planned.
Put the Numbers in Industry Context
Franchising is a large economic sector, with total U.S. output measured in the hundreds of billions. Industry forecasts also indicate that franchising continues to grow faster than the broader economy in many periods.
You may encounter claims that franchising is a 921.4 billion dollar asset class, grows 1.4 times faster than other business models, or that proven systems with more than 10 years and 100 or more units have survival rates above 90 percent.
Treat those claims as context, not proof.
The methodology, year, source, and definition of “survival” matter. A mature, well-supported system may have meaningful advantages over a new concept, but no industry statistic can guarantee the result of your location.
Review the specific franchise instead:
- Item 19 for unit performance
- Item 20 for openings, closures, transfers, and franchisee contacts
- Item 21 for the franchisor’s audited financial statements
- Item 12 for territory rights
- Items 6 and 7 for initial and ongoing fees
Our related guide, How to Vet a Franchisor’s Financial Health in 10 Minutes, explains how Item 21 can help you assess the franchisor itself.
The Complete FDD Due-Diligence Review
Item 19 is important, but it should not be reviewed in isolation.
The full due-diligence process includes:
- Fees, Items 6 and 7, understand the initial and ongoing costs.
- Territories, Item 12, determine whether your market is protected and viable.
- Financial statements, Item 21, evaluate the franchisor’s financial health.
- Earnings claims, Item 19, assess unit performance and build your own model.
- Franchisee validation, Item 20, speak with current and former owners.
The FTC recommends reviewing the FDD carefully and consulting independent legal and financial professionals. A franchise attorney should review the franchise agreement, FDD, territory terms, renewal rights, termination provisions, and other legal obligations.
Frequently Asked Questions
Is Item 19 required in every FDD?
No. A franchisor may choose not to include a Financial Performance Representation. If Item 19 is absent, the franchisor and its representatives generally cannot make earnings claims outside the FDD.
Is the median always better than the average?
Not always, but the median is often more representative when a small number of high-performing locations distort the average. Review both figures, along with the range, quartiles, and sample size.
Can Item 19 guarantee my results?
No. Item 19 describes historical performance under stated assumptions. Your results will depend on market conditions, management, staffing, operating discipline, financing, competition, and many other factors.
What should I do if a salesperson makes a claim that is not in Item 19?
Ask the salesperson to identify where the claim appears in the FDD. If they cannot, document the statement and raise it with the franchisor and your franchise attorney.
Should I hire a franchise consultant?
A qualified franchise consultant can help you compare business models, identify questions, and determine whether an opportunity fits your goals and desired level of involvement. A consultant does not replace a franchise attorney or CPA. Each professional serves a different role.
About Gregory K. Mohr
Gregory K. Mohr has more than 15 years of experience in restaurants and franchising. He has received multiple Franchise Consultant of the Year awards and is the author of the Wall Street Journal bestselling book, Real Freedom.
His approach is analytical, practical, and low pressure. The purpose is not to push you toward one of the so-called best franchises to buy. It is to help you determine which opportunity, if any, fits your goals, experience, investment capacity, and long-term asset-building plan.
A strong franchise can become a transferable, scalable asset. It should not require you to create a job that depends entirely on your personal presence.
The Bottom Line
Item 19 is not a promise. It is a starting point for disciplined analysis.
Look past the headline number. Compare median and average results. Check the sample size. Understand the maturity curve. Separate revenue from profit. Build a local P&L, then stress-test it at 15 percent below projected revenue.
That is how to choose a franchise with clear eyes.
If you would like an objective conversation about your franchise options, book a free discovery call with Gregory Mohr. The conversation is designed to be collaborative and low commitment, with honest guidance about whether franchising fits your goals.
This article is for educational purposes only and does not constitute legal, accounting, investment, or financial advice. Always review the current FDD with an independent franchise attorney and qualified CPA before signing an agreement or paying money to a franchisor.