Massage Envy Franchise Cost Worth It? (2024)
Massage Envy Franchising LLC is an American massage and skin care national franchisor. In addition to massage therapy, facials, skin peels, and Microderm infusion. Massage Envy franchises offer stretch therapy and skin care products. The Massage Envy franchise network uses a membership-based business model. Massage Envy has made its services accessible to a network of about 1.5 million members in franchised locations in 40 states and provided up to 100 million services.
As of 2022, Massage Envy has more than 1,100 independently owned and operated franchise locations, the largest provider of therapeutic massages and skin care in the United States. Established in 2002 and began franchising in 2003, massage Envy had already opened 420 independently owned and operated locations in 36 states in 2008. It added facials and other spa services in addition to massage services in 2009.
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How is Massage Envy Positioned in the Health and Beauty Industry?
The U.S. Health & Beauty industry is divided into different segments: hair care, skincare, cosmetics, perfumes, massages, and others. In addition, the industry covers a diverse array of personal products and beauty appliances. American women spend on average $3,000 on cosmetics per year while men spend over the same amount on health and beauty products. The industry generates around $90 billion in revenue, employing over 670,000 in the U.S. The Health & Beauty industry is one of the sectors that has been rapidly growing, where companies within it have to innovate and adapt in order to stay competitive.
According to IBISWorld, Massage services were estimated at $17 billion in revenue yearly, ranking after hair salons and beauty, cosmetics, and fragrance stores. Massage services’ annual growth rate over the previous five years is 7.3%, one of the fastest-growing franchise opportunities in the U.S.
While the health and beauty industry is traditionally marketed toward women, one of the fastest-growing consumers in the industry is men. According to Allied Market Research, the men’s personal care industry is predicted to hit $166 billion worldwide by 2022, with an approximate annual growth rate of 5.4% from 2016 to 2022.
Massage Envy Businesses compete with other businesses offering professional massage and facial services such as day spas, resorts, health clubs, chiropractic offices, and individual massage therapists. Some of these businesses operate through a franchise business model.
What is the Massage Envy Franchise Cost?
The total investment necessary to begin the operation of a Massage Envy business ranges from $614,850 to $927,000. This includes an initial franchise fee of $45,000 that must be paid to the franchisor. If you are opening a second or subsequent Massage Envy franchise, the initial franchise fee for the new operation will be reduced to $35,000. As part of the Veterans Transition Franchise Initiative, Massage Envy offers U.S. military veterans discounted initial franchise fees reduced to $36,000 for the first franchise and $28,000 for the second or subsequent store. The franchisee is required to pay a Refresh Site Survey fee of $4,200 for the construction necessary for the approved site.
Once the operations begin, franchisees are expected to pay the company a royalty fee of 6% on gross sales and a marketing fee of 2% on gross sales, and a supplemental marketing fund of 2% on gross sales. There is additional training or assistance fee of $250 per person per day plus expenses.
Estimated Initial Investment
| Type of expenditure | Amount | To Whom Payment Is To Be Made |
|---|---|---|
| Initial Franchise Fee | $45,00 | Us |
| Initial Opening Package | $46,000 to $63,000 | Designated suppliers |
| Computer System | $57,600 to $82,000 | Suppliers |
| Security Deposits | $6,000 to $12,000 | Landlord and utility companies |
| Three-Months’ Lease Rent | $13,000 to $29,000 | Landlord |
| Leasehold Improvements | $361,000 to $523,000 | Landlord or construction contractors |
| Signage (excludes interior signage that is part of the building materials included in Leasehold Improvements) | $6,000 to $18,000 | Suppliers |
| Business Licenses and Permits | $250 to $5,000 | Governmental agencies |
| Professional Fees | $7,000 to $30,000 | Architects, lawyers and other professionals |
| Grand Opening Advertising Program | $15,000 | Advertising sources |
| Insurance | $10,000 to $35,000 | Insurer |
| Training Expenses | $2,000 to $5,000 | Third parties |
| Additional Funds-3 months | $46,000 to $65,000 | Third parties and employees |
| TOTAL ESTIMATED INITIAL INVESTMENT | $614,850 TO $927,000 |
The average health & beauty industry royalty fee and marketing fees are 5.9% and 2%, which is similar to that of Massage Envy. By reviewing 5,500 businesses and the health and beauty franchise currently on our platform, we found that the investment range starts from around $15,000 up to $1,714,370, which makes the initial investment of Massage Envy at the midpoint of the industry.
How Much Do Massage Envy Franchise Owners Make?
As of December 31, 2021, there were a total of 1,109 franchised Massage Envy Businesses open and operating and, of that number, 1,103 Massage Envy Businesses were in operation continuously throughout the fiscal year 2021. 190 of these 1,103 Massage Envy businesses reflect the new smaller size and layout for Massage Envy businesses (ranging in size from 2,300 to 2,800 square feet) that prospective franchisees are required to develop moving forward. The following financial disclosure presents the 190 smaller format businesses.
190 Smaller Format Businesses Sales in 2021:
| Average Gross Sales | Number and Percentage of Locations Attaining or Exceeding Average Gross Sales | Median Gross Sales | Highest Gross Sales | Lowest Gross Sales | |
|---|---|---|---|---|---|
| Total | $1,009,980 | 84/190 (44.2%) | $951,883 | $2,150,003 | $219,175 |
Smaller Format Businesses Open 1-5 Years:
| Average Gross Sales | Number and Percentage of Locations Attaining or Exceeding Average Gross Sales | Median Gross Sales | Highest Gross Sales | Lowest Gross Sales | |
|---|---|---|---|---|---|
| Total | $591,954 | 10/21 (47.6%) | $538,307 | $1,171,673 | $262,723 |
Smaller Format Businesses Open 5-10 Years:
| Average Gross Sales | Number and Percentage of Locations Attaining or Exceeding Average Gross Sales | Median Gross Sales | Highest Gross Sales | Lowest Gross Sales | |
|---|---|---|---|---|---|
| Total | $851,245 | 16/35 (45.7%) | $884,700 | $1,690,896 | $219,175 |
Smaller Format Businesses Open 10+ Years:
| Average Gross Sales | Number and Percentage of Locations Attaining or Exceeding Average Gross Sales | Median Gross Sales | Highest Gross Sales | Lowest Gross Sales | |
|---|---|---|---|---|---|
| Total | $1,116,952 | 57/134 (42.5%) | $1,033,639 | $2,150,003 | $347,927 |
We can see that in 2021, Massage Envy franchisees had an average of $1,009,980, with 44.2% exceeding the average. Compared across businesses opened for various periods, revenues of the businesses are stably increasing over time, proving a viable business in the long term.
2021 Massage Envy Average Franchise Sales: $1,009,980
| Initial investment(midpoint) | %Profit margin of average franchise sales | Estimated Profits | Time to recoup investment |
|---|---|---|---|
| $770,925 | 10% | $100,998 | 9.1 years |
| $770,925 | 15% | $151,497 | 6.6 years |
| $770,925 | 20% | $201,996 | 5.3 years |
In 2021, based on the average sales of the 190 smaller format businesses, at an average 15% profit margin, it will take around 6.6 years to recoup your investment. This is longer than most franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment. The time to recoup investments incorporates roughly a 1.5-year period to scale up the store. This includes finding the location, building the store, passing break even, and then reaching significant income.
Is the Massage Envy Profit Worth the Franchise Cost?
To assign a valuation multiple for Massage Envy 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 – 0.45
Over $5 Million Net Sales
- Estimated Selling Price = Net Sales – 2.33
When you go to sell a Massage Envy franchise based on the median multiple of 0.37 and net sales of $1,009,980, it would sell for $373,692. This is significantly lower than the midpoint investment of $770,925.
If you have at least 5 stores, the median multiple for net sales over $5 million is 2.33 and you do have the ability to make a significant profit. So 5 stores would result in $5,049,900 in sales and you are able to sell it for $11.7 million! 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. If the seller averaged $770,925 to open each store, he/ she could net over $11 million when the stores are sold!
How Many Massage Envy Units Have Opened and Closed?
| State | Year | Outlets at the Start of the Year | Outlets Opened | Terminations | Non-Renewals | Reacquired by Franchisor | Ceased Operations-Other Reasons | Outlets at End of Year |
|---|---|---|---|---|---|---|---|---|
| Totals | 2019 | 1166 | 11 | 5 | 0 | 0 | 18 | 1154 |
| 2020 | 1154 | 7 | 6 | 4 | 0 | 24 | 1127 | |
| 2021 | 1127 | 8 | 6 | 1 | 0 | 19 | 1109 |
The number of franchisees is decreasing over the last three years. In 2021, there were 6 stores terminated, 1 non-renewals, and 19 ceased operations. The failure rate for 2021 is only 2.3%, significantly lower than the industry average failure rate of 16.22%! Although the overall number of franchisees is decreasing, the average failure rate over the three years is 2.4%. As of December 31, 2021, there are 59 new franchise agreements signed and 18 projected new outlets open next year.
Massage Envy Income Statement Takeaways
The total revenues are increasing over the three years, even with the impact of the COVID-19 pandemic. In 2020, Massage Envy saw an increase of $14 million in revenues, compared with that of 2019. In 2021, the total revenues increased by 30%, from $72,714,579 to $94,479,849, especially in the royalty fees and franchise fees segments. Although the cost of revenues is increasing as well, Massage Envy reaches a positive net income across three years.
State of Income
| Years Ended December 31, 2021 and 2022 and period ended December 31, 2019 | |||
| For the year ended December 31, 2021 | For the year ended December 31, 2020 | for the period June 18 to December 31, 2019 | |
|---|---|---|---|
| Renevues | |||
| Royalty fees | $67,707,813 | $48,479,894 | $41,687,344 |
| Franchise fees | 3,169,338 | 2,422,844 | 2,231,857 |
| Technology fees | 16,261,754 | 16,573,520 | 8,959,034 |
| Referral fees | 6,193,974 | 4,336,709 | 4,601,340 |
| Other revenues | 1,148,970 | 901,612 | 757,810 |
| Total Renevues | $94,479,849 | $72,714,579 | $58,237,385 |
| Cost of revenues | |||
| Regional developer royalties | 5,342,968 | 3,726,925 | 3,738,271 |
| Regional developer commissions | 784,973 | 684,131 | 549,692 |
| Other costs of sales | 8,152,860 | 8,192,019 | 4,402,683 |
| Total cost of revenues | $14,280,801 | $12,603,075 | $8,690,646 |
| Gross Profit | $80,199,048 | $60,111,504 | $49,546,739 |
| General and administrative expenses | |||
| Management fees paid to Affiliate | 12,618,035 | 7,107,147 | 7,331,176 |
| Amortization of intangible assets | 21,414,542 | 21,414,542 | 11,306,796 |
| Other general and administrative expenses | 185,487 | 290,260 | 106,143 |
| Total general and administrative expenses | $34,218,064 | $28,811,949 | $18,744,115 |
| Income from operations | $45,980,984 | $31,299,555 | 30,802,624 |
| Other expense | |||
| Interest paid to Affiliate | – | 2,856 | – |
| Total other expense | – | 2,856 | – |
| NET INCOME | $45,980,984 | $31,296,699 | $30,802,624 |
Massage Envy Cash Flows Statement Takeaways
Liquidity is one of the most important measurements of a company’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund business operations, operations, and expansion of franchised restaurant locations. According to the cash flows statement, Massage Envy has a $102,825 increase in cash and cash equivalents. At the end of the fiscal year, its total cash and cash equivalents amounted to approximately $2,117,771.
Statement of Cash Flow
| Years Ended December 31, 2021 and period ended December 31, 2019 | |||
| For the year ended December 31, 2021 | For the year ended December 31, 2020 | For the period June 18 to December 31, 2019 | |
|---|---|---|---|
| Cash flows from operating activities: | |||
| Net income | $45,980,984 | $31,296,699 | $30,802,624 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Amortization of intangible assetes | $21,414,542 | $21,414,542 | $11,306,796 |
| Changes in operating assets and liabilities: | |||
| Receivables | (1,185,186) | 2,520,449 | (3,759,821) |
| Prepaid expenses and other assets | 630,806 | 634,132 | 471,191 |
| Accounts payable | 1,914 | (232,624) | 446,191 |
| Other accrued expenses | 139,685 | (455,496) | 937,010 |
| Deferred expenses | (762,433) | (1,794,309) | (603,124) |
| Net cash provided by operating activities | $66,220,312 | $53,383,393 | $39,601,131 |
| Cash flow from investing activities: | |||
| Purchases of other intangible assets | – | – | (8,758,750) |
| Net cash used in investing activities | – | – | (8,758,750) |
| Cash flows from financing activities: | |||
| Contributions from member | – | 8,000,000 | 12,988,760 |
| Distribution to member | (66,117,487) | (62,997,096) | (40,502,492) |
| Net cash used in investing activities | (66,117,487) | (54,997,096) | (27,513,732) |
| NET INCREASE (DECREASE) IN CASH | $102,825 | $(1,613,703) | 3,328,649 |
| Cash at beginning of period | $2,014,946 | $3,628,649 | $300,000 |
| Cash at end of period | $2,117,771 | $1,014,946 | $3,628,649 |
Conclusion
Investing in a Massage Envy franchise is an interesting and viable opportunity, in terms of its good performance during the COVID-19 pandemic. Although the average entry investment of $1,009,980 is not low compared to other industries and franchises in the same industry, it is worth investing both in long term and short term if you are planning to open a multi-unit franchise. The health and beauty industry is a rapidly growing industry that will never go away. If you are interested in stepping into the health and beauty industry, Massage Envy can be your first stop, being the largest franchisor in the industry, which equips you with experience and provides you with a high reputation just at the start of your career!
