roi math: what item 19 really tells you (and what it doesn’t)
For many prospective franchisees, Item 19 is the most scrutinized part of the Franchise Disclosure Document (FDD). It’s where franchisors are allowed (but not required) to share financial performance data — usually revenue numbers from existing locations.
On the surface, it looks like a shortcut to understanding how much money you might make.
But here’s the reality:
Item 19 is a starting point — not a conclusion. And reading it at face value can lead to costly assumptions.
Let’s break down what Item 19 does tell you — and what it absolutely doesn’t.
✅ What Item 19 Can Tell You
Item 19 gives you a snapshot of performance — but only as defined by the franchisor. Depending on the system, it may include:
Average or median gross revenue from a set of locations
Breakdowns by quartile, region, or unit age
Profit/loss data, though this is less common
Time periods covered (often one or two years)
Number of units included in the analysis
When done well, it gives you a sense of how high-performing units compare to average or low-performing ones. That can help frame realistic expectations — especially if you also ask franchisees about their local operating conditions.
⚠️ What Item 19 Doesn’t Tell You (But Should)
This is where the real danger lies. Even a seemingly detailed Item 19 leaves out some critical context:
1. No Expense Breakdown = No Profit Insight
Most Item 19s report revenue only. That means:
$750K in revenue might sound great — until you realize the expenses total $700K.
Without seeing labor, rent, marketing, royalty, and technology costs, you have no visibility into unit economics or true ROI.
2. Cherry-Picked Data
Franchisors don’t have to include all locations — just the ones that fit their criteria. That means:
Struggling or recently closed units might be excluded
“Top 50%” or “mature” units may dominate the averages
The dataset may include only corporately owned stores, not franchisee-run ones
Always ask: How many units are in the system vs. how many are reported in Item 19? If the sample size is small, the numbers are marketing — not analysis.
3. No Clarity on Investment Payback
Even if revenue and profit are clear, Item 19 rarely shows how long it takes to recoup your initial investment. That matters. You could be profitable and still cash-strapped if payback takes 5+ years.
Ask:
How long does it take the average franchisee to break even?
What does the path to ROI really look like — especially after royalties and fees?
🧮 The Right Way to Use Item 19
Don’t ignore Item 19 — but don’t treat it like gospel either. Use it as a benchmark, then build your own model.
Here’s how:
Get the full FDD and read the footnotes in Item 19 carefully
Ask current franchisees what their real numbers look like
Create a simple model of your own:
Revenue assumptions
Expenses (labor, rent, fees, marketing)
Net income
Startup investment and payback period
If the math doesn’t work on paper, it definitely won’t work in real life.
💡 Final Thought
Item 19 is often polished, filtered, and curated to paint a best-case scenario. The franchisor knows you’ll study it. But the real insight comes from what’s missing — and how you fill in the gaps.
Because franchise success isn’t found in averages.
It’s found in your due diligence — and your willingness to do the math no one else will.
👉 Use this link to download your free Item 19 Evaluation Checklist.
✅ Need a Second Set of Eyes?
If you're evaluating a franchise and want a clear-eyed view of the financial model — including what Item 19 reveals (and conceals) — I can help.
I work with professionals who want objective analysis, not a sales pitch. Whether you're early in your process or knee-deep in due diligence, I’ll help you pressure-test the numbers and ask smarter questions.
📩 Schedule a call when you’re ready to talk through it.
