FDD Item 19: What Franchise Earnings Claims Show
Item 19 of a Franchise Disclosure Document (FDD) addresses claims about sales, income or profit. Performance claims generally must appear here, subject to the existing-outlet records and written supplemental-information exceptions explained below (16 CFR 436.5(s)).
The Franchise Rule calls these figures financial performance representations. The representation is optional, not the Item 19 section. Franchisors that make none must include the rule’s prescribed non-disclosure statement.
What the rule requires
When a franchisor includes figures, Item 19 must open with a set statement. It explains that the rule allows a franchisor to share information about the actual or potential financial performance of its outlets “if there is a reasonable basis for the information, and if the information is included in the disclosure document” (16 CFR 436.5(s)).
When can figures differ from Item 19?
The rule distinguishes two cases. The first concerns actual operating records for a specific existing outlet being offered for sale. The franchisor may give those records only to potential buyers of that outlet. This remains possible even if the FDD makes no Item 19 performance representation; the rule’s required non-disclosure statement expressly preserves the existing-outlet exception. Results from that outlet do not predict a new location (16 CFR 436.5(s)(2) and (4)).
The second concerns a particular location or variation when Item 19 already contains a representation. The franchisor may give a separate written supplement that explains how its figures differ from the FDD’s Item 19 figures. The supplement must describe whether it uses historical results or a forecast, give the applicable bases or assumptions, warn that a new franchisee’s results may differ, and be furnished to the prospective franchisee (16 CFR 436.5(s)(3)(i)–(iv) and (5)).
Ask for the actual outlet records if you are buying that outlet, or for both the Item 19 disclosure and the written supplement if you are evaluating a location-specific claim. A verbal estimate for a new outlet does not become an existing-outlet record merely because it names a location (16 CFR 436.5(s)(1), (4) and (5)).
If the FDD makes no earnings claim
A franchisor that makes no representation must say so in these words: “We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. We also do not authorize our employees or representatives to make any such representations either orally or in writing.” The statement goes on to tell you to report any other performance figures or income projections you receive to the franchisor’s management, the FTC and state regulators (16 CFR 436.5(s)).
Five questions to ask of any Item 19 table
1. Which outlets are included?
A figure may cover every franchised outlet, only outlets open for a full year, only a top-performing group, or outlets the franchisor runs itself. Read the definitions above and below each table. An average that leaves out outlets opened during the year and outlets that closed describes the ones that survived, which is not the same as a typical new owner’s first years.
The Club Pilates Minnesota FDD, PDF pp. 75 and 78 shows why that definition matters. It reports these groups for its stated measurement period:
| Group in the FDD | Studios | Treatment in the annual gross revenue table |
|---|---|---|
| Qualified studios | 1,005 | Included in the reported average and median |
| Studios that opened during the year | 153 | Excluded from the full-year group; results appear separately by month |
| Expanded studios | 19 | Reported separately from qualified studios |
| Non-traditional studios | 2 | Excluded from the qualified-studio group |
The FDD also says three studios ceased operations during the period. They are outside both the year-end studio count and the annual qualified-studio group. Its reported average gross revenue of $987,810 and median of $978,332 describe the qualified group, not every studio that operated during the year. See the Club Pilates earnings page for the figures with their sample labels. These are sales, not owner profit.
2. Is it an average or a median?
An average can be pulled up by a few very high-volume outlets. A median is the middle value of ordered results, or the average of the middle pair; ties are possible. If the table gives only an average, look for a statement of how many outlets reached or beat it. If there isn’t one, ask the franchisor for it.
3. Is it sales or profit?
Check whether each figure is gross sales, meaning revenue before any costs, or a profit measure. Gross sales is not what an owner takes home. Royalties and brand fund fees in Item 6 are usually charged as a percentage of sales, and rent, wages, product costs, insurance and loan payments also come out of that revenue.
For a simple sales-based fee, the calculation is sales multiplied by the fee rate. Use the fee’s actual definition of sales and check for minimums, caps and exclusions in Item 6. The true cost calculator accepts your own assumptions; a flat rate cannot reproduce every conditional fee formula.
If a figure is labeled as profit or earnings, read which costs were subtracted. Check whether it takes out rent, an owner’s salary, loan payments and depreciation. Profit measures and cash flow are different: a loan principal payment, for example, is a cash outflow rather than an operating expense. Ask an accountant which items the measure includes and which cash obligations it leaves out (FTC consumer guide).
4. Which year does it cover?
First distinguish historical results from a forecast. A historical representation identifies its period and sample; a forecast explains its assumptions (16 CFR 436.5(s)). A franchisor must issue a revised FDD within 120 days after each fiscal year ends, so check that your copy is the latest. When the seller gives you the FDD, it must also tell you about “any material changes that the seller knows or should have known occurred in the information contained in any financial performance representation made in Item 19” (16 CFR 436.7).
5. How can you check it?
The FTC advises: “Be sure to ask the franchisor for written substantiation that supports the claim” (FTC consumer guide). Then test the figures against the people who produced them. Item 20 lists current franchisees and those who left in the last fiscal year. The FTC suggests you “talk to several franchisees who have been in business just over one year” and ask about their total investment and whether they were able to break even. See how to read Item 20 for how to use those lists.
How much do franchise owners make?
The Franchise Rule does not require an FDD to report a franchise owner’s salary. Item 19 is where a franchisor may describe what outlets sell or earn, but the rule does not require an earnings claim (16 CFR 436.5(s)). Many representations cover sales only. A sales figure says nothing directly about pay: royalties, rent, wages and product costs come out of it first.
A profit figure needs its definition read before you treat it as pay. Two FDDs on this site show the difference:
- Mathnasium reports average operating profit for franchised centers. Its FDD says the payroll in that calculation excludes owner salary or draw and management pay, so the figure comes before anyone is paid to run the center (Mathnasium earnings page).
- Anytime Fitness reports average EBITDA for company-owned centers, after a manager’s salary, with expenses adjusted by the franchisor to what a franchisee would pay (Anytime Fitness earnings page).
The first describes what is left before paying an owner who runs the business; the second describes what is left after paying a hired manager. EBITDA is earnings before interest, taxes, depreciation and amortization, so loan payments and income taxes still come out of either figure. Neither predicts a new outlet’s results.
To work toward your own number:
- Pick the Item 19 figure whose sample matches your plan, such as mature outlets, franchised rather than company-owned, or owner-run rather than managed.
- List what its definition leaves out: your loan payments (the SBA loan calculator estimates them), taxes, and any cost the FDD excludes.
- Ask franchisees from the Item 20 lists what they pay themselves and how long it took to break even, as the FTC suggests, and have an accountant review the result (FTC consumer guide).
When Item 19 contains no performance representation
A non-disclosure statement is not evidence either way about how outlets perform. It means there is no system-wide performance representation in that FDD to test. Independent research is still needed. Expect to spend more time on franchisee calls, and have an accountant review your numbers.
When a franchisor or its sales representative gives you a sales or profit figure outside Item 19, ask whether it is one of the two cases above. Otherwise, the Franchise Rule does not allow that seller to make the claim (16 CFR 436.5(s)). You can still ask current and former franchisees about their own results; the FTC recommends those conversations. When Item 19 has no earnings claim, its required non-disclosure statement tells buyers to report other performance claims they receive from the seller. You can file a complaint at ftc.gov or call 1-877-FTC-HELP (1-877-382-4357) (FTC consumer guide).
How this site uses Item 19
- A franchise gets an earnings page only when its FDD includes actual dollar figures for revenue or profit in Item 19. We report each figure with the FDD’s own label, period and the group of outlets it covers.
- Where suitable data exists, the 10-year model uses the selected broadest average or median gross sales of franchised outlets and the supported recurring fees from Item 6, added to the Item 7 startup range. Conditional fees, incompatible sales definitions or missing inputs can prevent an estimate. This is not a full operating budget or a profit forecast.
- We never estimate profit, and we don’t fill in a revenue figure for brands that disclose none.
The methodology explains each step. For the rest of the document, see how to read a Franchise Disclosure Document.
