The Franchise 500^® as a research tool: how objective and reliable is it?

The purpose of this research is to explore the objectivity and reliability of Entrepreneur Magazine's Franchise 500^® ranking system.

Using data from 1997 to 2004 rankings, regression analysis was used to determine the extent to which key variables explained the rank of franchise firms.

Several quantifiable measures, categorized by the publishers as “most important” or “important” to a firm's rankings, were found to have little or no explanatory power in the regression model. Longitudinal analysis revealed inconsistencies in the ranking among the top 100 ranked franchises, which question the ranking system's reliability.

Only a subset of the variables used to calculate the rankings are disclosed by the publisher, yet these variables explain a substantial portion of any given franchise's rank. Only the top 100 ranked firms were included in the study.

While considered to be important to a firm's rank, the amount of pending litigation and the percentage of terminations within the system, found to be indicators of conflict between franchisor and franchisees, appear to have little effect on a franchise's rank. Also, size of the franchise system appears to have a strong but inconsistent relationship with rank, both within any given year and over the time period covered by this study. Lastly, the relationship between growth rate and rank, another factor considered by the publisher to be most important, also appears inconsistent, both in terms of number of outlets added and percentage of growth attained over the previous year.

Due to the wide popularity of the ranking system by practitioners and researchers a more systematic examination of the ranking appears justified to understand the underlying research implications of franchising research as it relates to the Franchise 500.