How Do I Create an Item 19 Earnings Claim? A Practical Guide With Expert Tips

How do I create an Item 19 earnings claim? It’s a common and important question for franchisors, particularly those looking to grow responsibly while setting clear expectations for prospective franchisees. Item 19 of the Franchise Disclosure Document (FDD) is the only place where franchisors may legally disclose financial performance information. Doing so requires precision, documentation and care.

What Is an Item 19 Earnings Claim?

Item 19 is unique within the FDD because it is optional (yet highly scrutinized). Item 19 governs all financial performance representations. This means any discussion of what franchisees earn, generate or produce financially must live within FDD Item 19. 

“Item 19 is the only place where a franchisor can disclose how much franchisees make,” said franchise attorney Keith Gross. “The unique thing about Item 19 is that it is presented at the discretion of the franchisor. It is not mandatory.”

Gross added that while franchisors are not required to include earnings claims, those who do must strictly follow the rules. “Franchisors are, with few exceptions, prohibited from providing any financial information that is not included in the FDD Item 19.”

How to Create an Item 19 Earnings Claim

So, how do I create an Item 19 earnings claim that is both compliant and useful? Franchisors should focus on accuracy, transparency and context. Five considerations:

• Base Claims on Verifiable Data: Earnings claims must rely on actual historical performance from franchise units that is supported by records.
• Avoid Highlighting Outliers: “Instead of discussing the success of one top-earner,” said Spire Franchise Capital founder and CEO Brent Dowling, “Item 19 should, ideally, be used to quantify what the business is capable of doing as a whole.”
• Disclose the Sample Size: Franchisors must show how many units achieved the stated results in comparison to the total system.
• Define Metrics Clearly: Revenue, gross sales or other figures must be precisely described and consistently applied.
• Work With Experienced Franchise Counsel: Legal review can help mitigate risk and ensure FTC compliance.

Why Systemwide Context Matters

Item 19 works best when it paints an accurate picture of what the business can reasonably deliver.

“The Federal Trade Commission requires that if franchisors list any performance numbers, they must also show the number of actual units that have experienced those numbers compared to the entire sample size,” Dowling said. 

So, how do I create an Item 19 earnings claim that builds credibility while supporting greater franchise development? That answer lies in careful collection of data and strict adherence to FTC guidelines. While it is optional, a well-constructed FDD Item 19 can help potential franchise owners better understand the opportunity while helping franchisors present their brand with clarity, confidence and accuracy.

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