Kumon Franchise in 2023: Cost Not Worth the Profit

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 opportunity allows you to run 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 to 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 who created a supplemental math program for his son, who was getting marks at or near 100% in second-grade math. As a result of Mr. Kumon’s method, his son reached calculus by the sixth grade. Over the ensuing decades, this became an international business. Mr. Tanabe was appointed President and CEO of Kumon North America on its Board of Directors in October 2013. In 2022, he also became CEO of Kumon South America.

The Japan regional headquarters has initiated businesses in various countries similar to the type being offered in the U.S since 1958. Kumon in the United States has offered franchises since 1994 but is actually celebrating its 40th anniversary in 2023,2023,2023, so was operating before 1994 in other capacities. 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.

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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 who both work full-time and would want their children to develop hobbies or extracurricular activities. Furthermore, schools are now looking for well-rounded students who not only excel in school but also are involved in other activities.

Many Children’s Programs businesses overlap with Children’s Education Programs, especially because some of the sub-sectors, like tutoring, are also after-school activities. However, many businesses in the Children’s Programs industry focus on non-academics. They 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.

On the one hand, Kumon North America appears to be a very successful franchisor. It 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 No. 1 tutoring franchise for its performance in areas including unit growth, financial strength and stability, and brand power. However, as we will see, the perspective from the franchisee side is not equivalent.

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

However, based on conversations with Kumon franchisees, we estimate that additional funds are almost double that listed at $27,000 – $36,000. This drives the initial cost estimate to $80,928 – $163,640, which is a higher cost.

Actual startup costs can even be in the $200,000 – $300,000 range depending on the build-out and when you finally break even.

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.

The royalty fee ends up being around $34 – $38 with nearly all subjects having a fee of $38. This, at the end of the day, amounts to a royalty fee of 30% of gross revenues if the current average tuition of about $130-140 per subject per month is being charged. This fee is prohibitively high and one of the highest we have seen in franchising.

Note: Some franchisees charge over $200 per month and thus bring their effective royalty down to a somewhat more reasonable figure. However, it is rare that franchisees effective royalties are under 25% of gross.

Marketing Fee: Kumon says in its FDD that there’s no marketing or advertising fee. However, rules are rapidly changing, and the franchisee we interviewed said that new franchisees are now required to pay for digital advertising. They are expected to pay at least $300 per month either through an outside marketing agency or through their own initiatives.

Local Marketing: Kumon franchisees are required by the FDD to aggressively promote their franchises in every way possible, including locally. During the first two years of COVID-19, opportunities were limited but now there is more pressure to find a number of different local marketing approaches in addition to digital marketing, though there is no specific dollar amount attached.

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 1,568 franchise units

Royalty Fee: As we have stated above, the royalty tends to be around 30%.

In 2021 Kumon franchise revenues were $122,600,000.

Estimated Total Franchise Sales: $408,666,666.

Estimated Average Franchise Revenue: $260,629

As you can see, with an average profit margin of 7.5%, it takes a really long time of 12.75 years to break even on your initial investment. This is much longer than other franchises in the industry and shows up in other ways that we will discuss below.

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 as to how it will affect Kumon Centers.

This is just 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.

What Is the Kumon Franchise Owner Salary?

New Kumon owners put in anywhere from 40 to 80 hours per week on average into working on their franchises. Most of this work would be priced at a very low hourly wage. However, many franchisees stay in the system motivated by the unique benefit of Kumon to the students they support.

Additionally, Kumon operates centers that cannibalize existing centers. For example, Kumon opened a corporately owned location a short distance away from a franchisee who is among the most successful Kumon owners in the USA. Immediately students began to transfer to the new center.

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

When you go to sell a Kumon Center franchise based on the median multiple of .46 and net sales in 2021 of $260,629 it would sell for $119,885. This represents a significant loss when allotting for your time to build up the business and break even (sweat equity).

It is difficult to make the money back from owning a Kumon franchise, which means your initial investment, which could be as high as $300,000, could become a sunk investment. We recommend looking at a Kumon resale instead of a new location.

Kumon Math & Reading Center

Hartford County, CT

Asking Price:	$150,000	Cash Flow	$0
Gross Revenue:	$0	Inventory:	N/A
EBITDA:	N/A	Rent:	$3,100 per Month
FF&E:	N/A	Established:	N/A

Kumon franchise available in a busy area

Massachusetts

Asking Price:	$80,000	Cash Flow:	$38,215
Gross Revenue:	$108,588	Inventory:	N/A
EBITDA:	N/A	Rent:	$1,650 per Month
FF&E:	$1,000	Established:	N/A

Profitable and Growing Kingwood Area Kumon Enrichment

Harris County, TX

Asking Price:	$185,000	Cash Flow:	$57,274
Gross Revenue:	$287,110	Inventory:	$2,000+
EBITDA:	N/A	Rent:	$4,100 per Month
FF&E:	$25,000	Established:	2004

Kumon (Franchisor) Income Statement Key Insights:

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.

Kumon Management Runs the Business in the Traditional Japanese Way

Kumon’s business model in 2022 is still based on the idea from the 1950s that Japanese housewives in the post-war years were happy just to work and produce value even if they were not getting much in return. However in the U.S., Kumon centers are exclusively run in retail locations with rents at least in the $3,000 – $5,000 range but which in at least one case is as high as $15,000.

Owners normally need to give six months of notice before they leave the system (except in the months before the royalty is increased, when the notice is only 60 days).

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, Maryland.

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.

2. 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, Pennsylvania.

If you lease the school facility and the landlord constructs the improvements, the total investment necessary to begin the operation of The Goddard School franchise is from $818,300 to $1,090,100 for a school and from $390,650 to $670,950 for an associated satellite school. This includes $259,000 to $283,000 that must be paid to the franchisor or affiliate for a school and $61,250 to $67,750 for an associated satellite school. If you purchase the land and build the school facility, the total investment necessary to begin the operation of The Goddard School franchise is from $3,844,300 to $7,360,100 for a school and from $3,416,650 to $6,940,950 for an associated satellite school. This includes $259,000 to $283,000 that must be paid to the franchisor or affiliate for a school and $61,250 to $67,750 for an associated satellite school.

Royalty Fee for a Goddard School Franchise is 7% of Gross Receipts of the School. If you are an existing franchisee purchasing an additional (new) franchise for a reduced initial license fee, the royalty fee is reduced during the first year of operation of the new School to 2% of Gross Receipts for months 1-3, 4% for months 4-6, and 6% for months 7-12. The Marketing Fund Marketing Fee is 4% of Gross Receipts, including the Gross Receipts derived from any Satellite Location or Annex, per month.

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.

3. 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. However, there are a few red flags in the system. We very strongly recommend talking to at least 5 franchise owners before starting a Kumon franchise and recommend resales over starting one from zero.

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.

Kumon Franchise in 2023: Cost Not Worth the Franchise Profit

Written by: Parth Parth

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