Kumon Franchise Cost Worth Profit Potential In 2022?
Written by: Parth Parth
This article is based on the video featured above, originally recorded for Vetted Biz YouTube Channel.
This article is based on its 2022 FDD.
The Kumon franchise will operate an after-school center that provides math and reading programs using the Kumon Method of learning (“Kumon Center”). Children are given the opportunity to attend Kumon Centers twice each week throughout the year for approximately 20–30 minutes per subject, and complete daily assignments at home on non-Center days.
In 1954, Toru Kumon developed the Kumon Method in Japan. Mr. Kumon was a Japanese high school math teacher and created a supplemental math program for his son, who was struggling with second grade math. Mr. Kumon’s method was so successful that his son reached calculus by the sixth grade. This then turned into an international business, and Mr. Tanabe was appointed President and became a member of Kumon’s Board of Directors in October 2013.
The Japan regional headquarters has conducted a business similar to the type being offered in the US since 1958. Kumon in the United States has offered franchises since 1994. Predecessors offered Kumon franchises from March 1983 to January 1994. There are over 4 million students studying the Kumon Method in approximately 25,000 after-school Centers in 58 countries. In North America, there were approximately 405,000 students studying it. There are 27 company-owned Kumon Centers, and 1,568 franchised Kumon Centers.
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How is Kumon Franchise Positioned in the Children's Programs Industry?
Children’s Programs are typically activities and programs children can participate in after school or during the summer. These programs are popular for parents that both work full-time and would want their children to develop hobbies in extracurricular activities.
Furthermore, schools are now looking for well-rounded students, not only should they excel in school, but they should also be involved in other activities to be “the full package.” Many Children’s Programs businesses overlap with Children’s Education Programs, especially because some sub-sectors like tutoring are also after-school activities. However, businesses in the Children’s Programs industry focus outside of academics. Many of these programs involve physical activity like sports, swimming, or outdoor play.
Another popular type of program uses the creative arts, teaching kids music, dance, or other types of performance. These programs are a step above what is available in schools, but more cost-effective for parents compared to private lessons.
Kumon North America has been ranked in the top ten of the overall Entrepreneur Magazine Franchise 500 List. 2021 is also the 20th year in a row that Kumon has been named the No. 1 tutoring franchise in the Franchise 500 List’s tutoring category. Kumon ranks as the number one tutoring franchise for its outstanding performance in areas including unit growth, financial strength and stability, and brand power. John Collins, Vice President of Center Network Development at Kumon North America, Inc. spoked with Entrprenuer.com “To be ranked in the top ten of Entrepreneur Magazine’s Franchise 500 List for the first time and recognized as the number one tutoring franchise for the 20th year in a row is a testament to Kumon’s commitment to both our franchisees and students across North America”.
How Much is a Kumon Franchise?
The initial Kumon Franchise Fee is $2,000 less the $1,000 Deposit Fee if you are obtaining your first Kumon Center franchise. You have to pay this upfront fee when opening a Kumon franchise.
Kumon Franchise Cost
The estimated total investment necessary to begin the operation of a Kumon Franchise ranges from $67,428 – $145,640. The following costs are part of the upfront costs included in the initial investment for a Kumon. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Kumon franchise in 2022.
Additional Cost Breakdown
| Type of expediture | Amount | Whom To Pay |
|---|---|---|
| Training Agreement Deposit Fee | $1,000 | Kumon |
| Initial Franchise Fee | $2,000 less the $1,000 Deposit Fee if you are obtaining your first Kumon Center franchise | Kumon |
| Initial Purchase of Materials | $1,000 | Kumon |
| Architect Design | $0 – $10,000 | Architect |
| Leasehold Improvements | $30,000 – $60,000 | Contractor |
| Security Deposit, If Required | $0 – $15,000 | Landlord |
| Rent | $1,000 – $4,000 | Landlord |
| Furniture, Equipment, Primary Sign & Supplies | $5,000 – $15,000 | Vendors |
| Notebook Computer at Kumon Center | $500 – $2,000 | Vendors |
| Professional Fees | $1,000 – $3,000 | Accountant, Lawyer |
| Liability Insurance | $480 ($4.80 multiplied by the number of students enrolled in the Math Subject) | Kumon or Insurance Agent |
| Business License, Name Registration | $100 – $200 | Local Municipality, State |
| Kumon Lead Management Telephone System | $480 – $600 | Kumon’s Vendor |
| Recommended Reading List | $2,600 | Vendors |
| Fingerprinting, Criminal Background Check | $18 – $60 | Treasury of the United States |
| Payroll Cost for Assistants (3 months) | $9,750 – $11,700 | Assistants |
| Additional Funds – 3 Months | $13,500 – $18,000 | Vendors, Utilities |
| Total | $67,428 – $145,640 |
Kumon Franchise Requirements
The franchisor is particularly looking for candidates who have a passion for education and working with children. Also needed are a four-year college degree and the ability to create and manage a Kumon center that will motivate and help children in your community. That said, the minimum net worth required to own a Kumon franchise is $150,000 and the applicant must have liquid assets of at least $70,000.
Owning a Kumon Franchise Requires Ongoing Fees
Royalty: Kumon has a complicated system, which we detail below.
Initial Enrollment Royalty Fee: For each reporting month, $15 times the number of newly enrolled students. Monthly Royalty During Temporary License Period (“TLP”): $38.25 times the number of full-payment students enrolled, and $19.13 times the number of partially exempt and/or prorated tuition students for each SubjectFranchise. In July 2023, these fees will increase to $40.50 and $20.25, respectively. Monthly Royalty after completing the TLP: $34 times the number of full-paying students enrolled, and $17 times the number of partially exempt and/or prorated tuition students for each SubjectFranchise. In July 2023, these fees will increase to $36.00 and $18.00, respectively.
Marketing Fee: None
Local Marketing: None
Based on our research, the average royalty fee takes up 7.1% of gross revenue, and the average marketing fee is 1.9%.
How Much Do Franchise Owners Make?
| Year Franchised Center Opened | Total Count of Centers as of December 31,2021 | Average/Median Number of Enrollments After 12 Reporting Months For Centers Opened in Year Indicated | Count (%) of Centers with Enrollments Equal To or Above the Average After 12 Reporting Months For Centers Opened in Year Indicated | Average/Median Number of Enrollments After 12 Reporting Months For Bottom 25% of Performing Centers by Year Opened (Count of Centers in this Category) | Average/Median Number of Enrollments After 12 Reporting Months For Top 25% of Performing Centers by Year Opened (Count of Centers in this Category) |
|---|---|---|---|---|---|
| 2020 | 58 | 76/68 | 26 (45%) | 31 (14) / 29 (14) | 135 (14) / 128 (14) |
| 2019 | 56 | 76/67 | 23 (41%) | 32 (14) / 31 (14) | 137 (14) / 129 (14) |
| 2018 | 31 | 83/78 | 13 (42%) | 46 (7) / 47 (7) | 129 (7) / 126 (7) |
Kumon Franchise Sales Figures
2021 Sales Figures and Break-Even Point:
Based on 1568 franchise units
Royalty Fee: An average of $22 per student for the royalty fee, and each student on average pays $150 per subject per month. Therefore, this is approximately a 14% royalty.
In 2021 Kumon franchise revenues were $122,600,000.
Estimated Total Franchise Sales: $875,714,285.
Estimated Average Franchise Revenue: $558,491
Estimated Average Franchise Revenue: $558,491
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $106,534 | 10% | $55,849 | 3.5 years |
| 15% | $83,773 | 2.75 years | |
| 20% | $111,698 | 2.5 years |
2020 Sales Figures and Break Even Point:
Based on 1547 franchise units
Royalty Fee: Average of $22 per student for royalty fee, and each student on average pays $150 per subject per month. Therefore, this is approximately a 14% royalty.
In 2020 franchise revenues were $112,500,000.
Estimated Total Franchise Sales: $803,500,000.
Estimated Average Franchise Revenue: $519,000.
| Initial investment (midpoint) | %Profit margin of median franchise sales | Estimated Profits | Time to recoup investments |
|---|---|---|---|
| $106,534 | 10% | $51,943 | 3.5 years |
| 15% | $77,915 | 3 years | |
| 20% | $103,887 | 2.5 years |
As seen in both 2019 and 2020 based on our estimates of franchise revenues, it takes around 3 years to make your initial investment back, even at just a 10% profit margin. This is an indicator of an efficient business model that has a quick return on capital.
Kumon Centers during 2020 saw a revenue decrease of 27%, and we can assume that this sharp decrease was due to the spread of COVID-19 and the fact that many indoor facilities such as education centers were unable to open and operate as normal. The move to online education will be a trend that will need to be analyzed further and how it will affect Kumon Centers.
This is just an estimated sales based on the franchisor’s income statement and can vary greatly depending on the length that the particular franchise location has been open and how well the business is run.
Is the Kumon Franchise Profit Worth The Franchise Cost?
To assign a valuation multiple for Kumon franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.
Under $1 Million Net Sales
- Estimated Selling Price = Net Sales * 0.46
Between $1 Million – $5 Million Net Sales
- Estimated Selling Price = Net Sales * 0.78
When you go to sell a Kumon Center franchise based on the median multiple of .46 and net sales in 2021 of $558,491 it would sell for $256,905. This is over double the midpoint investment of $102,174.
The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.
Kumon Math & Reading Center: Asking Price: $150,000 (Cash Flow: $0)
| Gross Revenue | EBITDA | FF&E | Inventory | Rent | Established |
|---|---|---|---|---|---|
| $0 | N/A | N/A | N/A | $3,100 per Month | N/A |
Kumon Franchise Available in a Busy area (Massachusetts): Asking Price: $80,000 (Cash Flow: $38,215)
| Gross Revenue | EBITDA | FF&E | Inventory | Rent | Established |
|---|---|---|---|---|---|
| $108,588 | N/A | $1,000 | N/A | $1,650 per Month | N/A |
Profitable and Growing Kingwood Area Kumon Enrichment (Harris County, TX): Asking Price: $185,000 (Cash Flow: $57,274)
| Gross Revenue | EBITDA | FF&E | Inventory | Rent | Established |
|---|---|---|---|---|---|
| $287,110 | N/A | $25,000 | $2,000 | $4,100 per Month | 2004 |
Consolidated Statements of Income
| For The Years Ended December 31, | |||
|---|---|---|---|
| 2021 | 2020 | 2019 | |
| Revenues | |||
| Franchise fees and royalties | $122,600,511 | $112,544,197 | $143,051,079 |
| Sales of publications and supplies | 2,017,877 | 2,463,833 | 2,633,814 |
| Tuition and related fees – company owned centers | 4,516,634 | 4,924,279 | 6,473,750 |
| Other Revenue | 1,896,574 | 1,768,444 | 2,230,799 |
| Total Revenues | 131,031,596 | 121,700,753 | 154,388,442 |
| Costs and operating expenses | |||
| Cost of revenues | 28,962,035 | 28,399,227 | 30,382,808 |
| Selling, general and administrative expenses | 75,970,463 | 77,475,231 | 87,289,278 |
| Total costs and operating expenses | 104,932,498 | 105,874,458 | 117,672,086 |
| Income from operations | 26,099,098 | 15,874,458 | 36,716,356 |
| Other income (loss) | |||
| Interest income, net of interest expense of $105, $372 and $269, respectively | 180,078 | 452,459 | 940,606 |
| Other income, net | 595,240 | 989,879 | 1,011,934 |
| Total other income | 775,318 | 1,442,338 | 1,952,540 |
| Income before provision for income taxes | 26,874,416 | 17,268,633 | 38,668,896 |
| Provision for income taxes, net of refunds | 7,219,470 | 4,571,462 | 11,112,200 |
| NET INCOME | $19,654,946 | $12,697,171 | $27,556,696 |
Kumon is a very profitable business for the franchisor, with retained earnings of $19.65 million in 2021. Compared to $27.55 million in 2020, they saw a decrease of around $8 million. This was probably due to COVID, and the recovery is clear when you compare 2020s figure of $12 million to 2021’s figure of over $19 million.
How many Kumon Centers have opened and closed?
Outlet Summary
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 1507 | 1547 | +40 |
| 2020 | 1547 | 1568 | +21 | |
| 2021 | 1568 | 1606 | +38 | |
| Company-Owned | 2019 | 23 | 21 | -2 |
| 2020 | 21 | 27 | +6 | |
| 2021 | 27 | 31 | +4 | |
| Total Outlets | 2019 | 1530 | 1568 | +38 |
| 2020 | 1568 | 1595 | +27 | |
| 2021 | 1595 | 1637 | +42 |
Over the last three years, the company has been in expansion. Both franchising units and company-operated stores have increased. Over the last three years, franchises have opened at a rate of 53 units a year. This is an indicator that these locations are performing well. Clearly, the confidence in the franchisor is still strong even after COVID.
Should you invest in a Kumon Franchise?
The Kumon Franchise offers a great opportunity to start a fulfilling business and join a well-respected company that has proven results year after year. Even though Kumon has held the top spot for tutoring companies for the past 20 years, there will be competition from educational services offered on the internet, tutoring centers, learning centers, and other centers. Some franchises that Kumon competes with are Club Z!, Mathnasium, and Tutoring Club.
The total investment needed to start a Kumon franchise ranges from $64,458 – $139,890 and in just a couple years you can have a return on your investment and begin profiting. Umon has a business model that has been proven since its inception in the 1950s and will continue to thrive as educational needs rise.
We strongly recommend you speak to at least 5 Kumon franchisees to better understand the financials (see questions to ask).
Think Kumon is the right franchise for you, or are you interested in other franchise opportunities in the Tutoring industry? Check out our listings page on the Vetted Biz website for thousands of franchises available for your investment.
What are alternatives to a Kumon Franchise?
If you want to explore more options in the schooling and daycare space, here are some recommendations you can look at:
- Kiddie Academy Educational Child Care is an American franchise system of specially designed early childhood learning and child care facilities offering programs for children between six weeks and 12 years of age, with over 250 franchised academies in 30 states and the District of Columbia. Kiddie Academy is headquartered in Abingdon, MD.
The total investment necessary to begin the operation of a Kiddie Academy Franchise is $417,000 – $1,039,000 for a leased Kiddie Academy franchised location, and $3,722,000 – $4,530,000 for a purchased Kiddie Academy franchised location. This includes between $65,000 and $145,000 in Initial Fees that must be paid to the franchisor or an affiliate.
Royalties are 7% of Gross Revenues, Brand Building Fund Contribution is 2% of Gross Revenues, among the major ongoing costs of running a Kiddie Academy Franchise.
In 2021, the median gross revenue for Kiddie Academy franchises was $1,543,161.
Over the last three years, the company has been expanding. While they have had only 1 company-operated unit, franchising units have increased. Over the last three years, franchises have opened at a rate of 24 units a year.
- The Goddard School is an early childhood education provider with more than 500 franchised Schools in 37 states and hundreds of markets, including the Atlanta, Boston, Chicago, Houston, New York City, Philadelphia, Portland, and St. Louis markets. Goddard Systems, Inc. (GSI) franchises The Goddard School from its headquarters in King of Prussia, PA.
The Median Revenue for a Goddard School Franchise in 2021 was $1,669,054 while the EBITDA was $321,938.
Over the last three years, the company has been expanding. While they have no company-operated units, franchising units have increased. Over the last three years, franchises have opened at a rate of 30 units a year.
- The Learning Experience is a childcare business that claims to provide a “curriculum that develops the whole child.”
The total investment necessary to begin the operation of a Center is between $589,419 and $5,225,419 per Center, depending on whether you purchase an existing Center, develop your own Center, or retain the franchisor to develop your Center (excluding the purchase of land). This includes payments that must be paid to the franchisor or affiliate that range from $525,000 to $2,625,000 (if you purchase an existing Center), $162,399 to $212,399 (if you develop your own Center), and $267,399 to $384,899 (if the franchisor develops the Center for you). If you sign a Multiple Franchise Center (MFC) Addendum to develop franchised Centers, then your total expenses will range from $2,295,676 to $20,839,676.
Royalties are 7% of the Center’s Gross Revenue, which includes all revenue related to the Center and the Brand Awareness Fund is, currently, 1% of Gross Revenue. However, the franchisor has the right to increase the minimum payment up to 2.5% of Gross Revenue.
The median gross sales for a mature Center in 2021 were $1,419,992.
Over the last three years, the company has been expanding. Both company-owned and franchised units have increased. Over the last three years, franchises have opened at a rate of 26 units a year. Company-owned units also increased from 23 in 2019 to 34 in 2021.
Conclusion
The preschooling and school business in the USA is big, and Kumon offers a chunk of it. While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Children’s Programs Industry.