FDD Talk: Primrose Schools Franchise Costs, Fees, Average Revenues and/or Profits (2022 Review)

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In this FDD Talk post, you’ll learn the following:

  • Section I – Estimated initial investment (franchise costs) for a Primrose Schools franchise, based on Item 7 of the company’s 2022 FDD
  • Section II – Initial franchise fee, royalty fee, and marketing fee for a Primrose Schools franchise, based on Items 5 and 6 of the company’s 2022 FDD
  • Section III – Number of franchised and company-owned Primrose Schools outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD
  • Section IV – Background information on the Primrose Schools franchise opportunity, including relevant news updates
  • Section V – Presentation and analysis of Primrose Schools’ financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:
  • 2021 and first quarter 2022 average, median, lowest, and highest gross revenues for the Primrose Schools facilities that were active franchises throughout calendar year 2021 (or, in the case of the data from first quarter 2022, that were active franchises throughout calendar year 2021 and first quarter 2022) (an “active franchise” is a franchise that has opened a facility and has not permanently closed such facility)
  • 2021 average, median, lowest, and highest gross revenues for the top 25%, second 25%, third 25%, bottom 25%, and all Primrose Schools facilities that were active franchises throughout calendar year 2021
  • 2021 average gross revenues, payroll and taxes, brand fund fee and royalty, other expenses, occupancy expenses, and adjusted operating income (EBITDAR) for the Primrose Schools facilities that were active franchises throughout calendar year 2021 and submitted the required data

Section I – Primrose Schools Franchise Costs

  • Initial Fee:  $50,000 to $80,000
  • Real Estate Fee:  $25,000
  • Security Deposit for Lease and Limited Rent Guarantee Fee:  $15,000 to $250,000
  • Utility Security Deposit:  $10,000 to $30,000
  • School Equipment and Supplies:  $222,000 to $340,000
  • Insurance:  $5,000 to $10,000
  • Initial Training and Opening Support Fee:  $35,000
  • Marketing, Advertising, and Grand Opening:  $40,000 to $105,000
  • Transportation Vehicle:  $900 to $42,000
  • Licenses:  $4,000 to $7,000
  • Miscellaneous Expenses:  $10,000 to $45,000
  • Financing Cost:  $55,000 to $75,000
  • Additional Funds for 3 Months:  $180,000 to $420,000
  • Total Primrose Schools Franchise Costs:  $651,900 to $1,464,000

Section II – Primrose Schools’ Initial Franchise Fee, Royalty Fee, and Marketing Fee

  • Initial Franchise Fee:  $42,000 to $80,000
  • Continuing Services and Royalty Fee (the “Royalty Fee”):  7% of Gross Revenues
  • Primrose Brand Fund Fee (the “Brand Fund Fee”):  currently, 2% of Gross Revenues, but may be increased by Primrose Schools at any time, but not more than a total of 3% of Gross Revenues
  • Local Advertising:  in 2022, 0.5% of Gross Revenues for any Facility that is in a Cooperative; and for any Facility that is not in a cooperative, 1% of Gross Revenues for the preceding month or $1,000, whichever is greater. Beginning in 2023, 1% of Gross Revenues for the preceding month or $1,000, whichever is greater.
  • Cooperative Contributions:  in 2022, 0.5% of Gross Revenues for the previous month, unless members of the Cooperative agree to a higher amount. Beginning in 2023, 1% of Gross Revenues for the previous month, unless members of the Cooperative agree to a higher amount.

Section III – Number of Franchised and Company-Owned Primrose Schools Outlets

Franchised

2019

  • Outlets at the Start of the Year:  391
  • Outlets at the End of the Year:  418
  • Net Change:  +27

2020

  • Outlets at the Start of the Year:  418
  • Outlets at the End of the Year:  445
  • Net Change:  +27

2021

  • Outlets at the Start of the Year:  445
  • Outlets at the End of the Year:  465
  • Net Change:  +20

Company-Owned

2019

  • Outlets at the Start of the Year:  0
  • Outlets at the End of the Year:  0
  • Net Change:  0

2020

  • Outlets at the Start of the Year:  0
  • Outlets at the End of the Year:  0
  • Net Change:  0

2021

  • Outlets at the Start of the Year:  0
  • Outlets at the End of the Year:  0
  • Net Change:  0

Section IV – Background Information on the Primrose Schools Franchise

16 Things You Need to Know About the Primrose Schools Franchise

Launches Social-Emotional Development Tool Amid Pandemic

1.  In late October 2021, Primrose Schools announced the launch of the Ages & Stages Questionnaires, Third Edition (ASQ-3) and Ages & Stages Questionnaires: Social-Emotional, Second Edition (ASQ:SE-2) – evidence-based screening tools aligned with American Academy of Pediatrics early childhood screening recommendations – in schools nationwide. Primrose Schools is the first and only national system of preschools to utilize these in all schools, and the ASQ-3 and ASQ:SE-2 will serve to enhance the Primrose-exclusive Balanced Learning approach by tracking developmental milestones and learning holistically in children from birth through age five.

2.  According to Dr. Laura Jana, fellow of the American Academy of Pediatrics and member of the Early Learning Council for Primrose Schools, “We know the first five years of a child’s life represent a critical period of learning and brain development, during which an estimated 85 percent of brain growth takes place. The addition of these tools in Primrose Schools system-wide stands to further strengthen the brand’s leadership in fostering collaborative relationships between families, early educators and health care providers to better serve the educational, health and developmental needs of children.”

3.  Commonly used by pediatricians, ASQ provides accurate, reliable developmental and social-emotional screening with input from parents’ observations. The tool uses milestones, like when a child communicates, gross and fine motor skill abilities, and problem solving, to identify developmental milestone achievement and inform meaningful next steps. The ASQ:SE-2 offers the additional ability to assess seven areas of social and emotional development, highlighting strength areas and opportunities for more individualized support.

4.  The pandemic has made clearer than ever before the need to address social-emotional development in early learning, as children have had to adjust to remote learning and greater social isolation. It is well recognized that the earliest years of life are vital to early childhood development, and evidence has shown that the earlier potential development delays are identified, the greater the likelihood of improving children’s developmental outcomes and increasing their chances of reaching their full potential. Launching ASQ-3 and ASQ:SE-2 in schools across the nation is one way that Primrose Schools is working to mitigate the effects of the pandemic on the country’s youngest learners and provide the highest-quality standard of care.

5.  Dr. Lauren Starnes, vice president of early childhood education research and development for Primrose Schools, added, “At Primrose, we celebrate each individual child and are committed to nurturing a culture of belongingness. We know that every child develops at his or her own pace. Adding this type of screening to our curriculum and comprehensive approach to assessment is not only beneficial for each child but also for their families. Bridging the gap between home and school will allow families and Primrose teachers to partner together seamlessly to help each child be prepared for kindergarten and beyond.”

Dedicates 40th Year to Expansion of Early Education and Child Care

6.  In early February 2022, Primrose Schools announced its 2022 growth plans, including projections of an estimated 25 incoming schools, several of which are in new urban locations like New York City. In the midst of skyrocketing demand for child care, the company is kicking off its 40th year focused on helping both new entrepreneurs and veteran franchise owners meet the early education and care needs of families in their community by opening schools and expanding access to Primrose’s time-tested and award-winning Balanced Learning Approach.

7.  Primrose Schools maintained its trusted reputation for safety and service excellence throughout the pandemic which led to positive financial growth and several important development milestones. Enrollment remained high during 2021 with many locations continuing to have waitlists for students. Likewise, the company awarded 27 franchise agreements, opened 22 schools, and experienced a 340% increase in potential franchise owner inquiries compared to 2020. Pre-pandemic inquiries from 2019 were outperformed by 142% as well. Building on this momentum, the company is poised to reach its milestone 500th location by this time next year.

8.  Steve Clemente, president of Primrose Schools, said, “Primrose Schools revolutionized early childhood education through our proven model, continued innovation and tireless commitment to supporting our franchise owners and the children and families they serve with the guidance and tools to thrive. We have expanded access to premier early education and quality child care significantly over the last 40 years. But as demand for these essential services continues, Primrose remains focused on empowering entrepreneurs to create a brighter future for all children and families by bringing new schools to communities across the country.”

9.  At a time when families are returning to our nation’s largest cities, new Primrose Schools are opening in critical financial centers that are experiencing some of the greatest child care shortages due to the pandemic, like New York City and Chicago. Similarly, migration of young families during the pandemic has been a major boon to secondary cities, but they need a vitally important service to sustain their growth – access to quality early education and child care. Primrose is working with new entrepreneurs, as well as veteran franchise owners, to help the nation’s fastest growing metro areas, like Austin, Boise, Nashville, and Reno, meet the needs of all residents.

10.  Child care shortages in Silicon Valley, Milwaukee, and other tech hubs grew significantly as they transitioned to work from home workforces at the height of the pandemic. As many businesses begin their call for a return to the office, Primrose has plans to open schools in these communities in the upcoming years to provide parents the quality early education and care solutions they need.

11.  In addition to experiencing rapid growth, Primrose Schools has been recognized for its dedication to franchise owners and work with national partners to expand access to early education and create meaningful child care solutions. Entrepreneur’s Franchise 500, the world’s first, best, and most comprehensive franchise ranking, named Primrose Schools No. 1 in the child care category and No. 65 on the overall list of best franchises for 2022. This is the sixth consecutive year Primrose Schools received the honor of claiming the top spot in the child care category. Primrose also received the top ranking in the child care services category of Newsweek’s 2022 America’s Best Customer Service list, and outperformed all child care competitors on the latest Franchise Times Top 400 report, earning the 108th spot overall.

12.  As lawmakers continued to debate the child care funding provisions to be included in the Build Back Better bill, Primrose Schools CEO Jo Kirchner worked alongside the Early Care & Education Consortium (ECEC) to advocate for a comprehensive public-private partnership and mixed-delivery child care framework benefiting all children. Likewise, Primrose continued its collaboration with AdventHealth at the revolutionary West Lakes Early Learning Center (ELC) and became the first national system of preschools to have their teachers and parents utilize evidence-based screening tools for their children aligned with the American Academy of Pediatrics.

Company History

13.  Primrose Schools was founded as Primrose Day School in 1982 by Paul and Marcy Erwin in Marietta, Georgia. The Erwins wanted to shake up the early childhood education industry by developing a program that focused on actually educating pre-school aged children instead of just offering a play-focused environment. The concept was a success and the Erwins opened more schools around Georgia.

14.  In 1988, Jo Kirchner, the company’s current president and CEO, was hired as a consultant to help shift the then half-day preschool to a full-day model, as well as to assist in the launch of the Primrose franchising concept. Two years later, Primrose Schools launched its franchising program and Kirchner officially joined the company as its vice president. Primrose Schools continued to grow around the U.S. over the next few decades.

15.  The Erwins retired in 1999 and sold Primrose Schools to Greenwich, Connecticut-based Security Capital Corporation. Kirchner was then appointed as CEO. American Capital Strategies acquired Primrose from Security Capital in 2006 for approximately $63 million. In 2008, the school was sold again, this time to Roark Capital Group, which still owns Primrose. Today, there are Primrose Schools across 33 states.

Entrepreneur’s Franchise 500

16.  Primrose Schools ranked No. 65 on Entrepreneur’s 2022 Franchise 500 list.

Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Primrose Schools Franchise (Item 19, 2022 FDD)

  • This Item 19 presents information about the financial performance of franchised Facilities during the calendar year ending December 31, 2021 (“Calendar Year 2021”) and the first quarter of the 2022 calendar year (“First Quarter 2022”).
  • Primrose Schools has not made permanent, material changes to its concept as a result of the COVID-19 pandemic.
  • This Item 19 includes data related to Facilities that were active franchises throughout Calendar Year 2021 (or, in the case of the data from First Quarter 2022, that were active franchises throughout Calendar Year 2021 and First Quarter 2022). An “active franchise” is a franchise that has opened a Facility and has not permanently closed such Facility.
  • Thus, except for one excluded Facility noted below, this Item 19 includes data from Facilities that were temporarily closed for periods of the applicable time period for any reason, which could include, for example, temporary closures for renovations, repairs, or personal reasons, as well as temporary closures due to the COVID-19 pandemic and related government restrictions on the operation of child care facilities.
  • This Item 19 does not include data for one franchised Facility with a capacity of 418 children (which is significantly larger than a typical Facility), one franchised Facility that closed due to weather damage in February 2021 and remained closed through the First Quarter 2022, and any Primrose on Premise Facilities (which are not representative of a typical Facility) that were active franchises during the applicable period (the “Excluded Facilities”).

Part 1 – Summary of Annual Gross Revenues of Facilities by Quarter in Calendar Year 2021 and First Quarter 2022

Calendar Year 2021 (438 Facilities)

First Quarter

  • Average Gross Revenues:  $478,607
  • Number and Percent at or Above Average Gross Revenues:  205 / 47%
  • Median Gross Revenues:  $467,126
  • Lowest Gross Revenues:  $104,029
  • Highest Gross Revenues:  $1,208,846

Second Quarter

  • Average Gross Revenues:  $535,099
  • Number and Percent at or Above Average Gross Revenues:  201 / 46%
  • Median Gross Revenues:  $524,430
  • Lowest Gross Revenues:  $105,020
  • Highest Gross Revenues:  $1,307,378

Third Quarter

  • Average Gross Revenues:  $546,908
  • Number and Percent at or Above Average Gross Revenues:  207 / 47%
  • Median Gross Revenues:  $532,466
  • Lowest Gross Revenues:  $124,790
  • Highest Gross Revenues:  $1,332,371

Fourth Quarter

  • Average Gross Revenues:  $567,495
  • Number and Percent at or Above Average Gross Revenues:  195 / 45%
  • Median Gross Revenues:  $549,724
  • Lowest Gross Revenues:  $175,094
  • Highest Gross Revenues:  $1,449,738

Full Year

  • Average Gross Revenues:  $2,128,109
  • Number and Percent at or Above Average Gross Revenues:  201 / 46%
  • Median Gross Revenues:  $2,084,533
  • Lowest Gross Revenues:  $508,934
  • Highest Gross Revenues:  $5,298,333

Calendar Year 2022 (438 Facilities)

First Quarter

  • Average Gross Revenues:  $616,629
  • Number and Percent at or Above Average Gross Revenues:  197 / 45%
  • Median Gross Revenues:  $598,717
  • Lowest Gross Revenues:  $180,641
  • Highest Gross Revenues:  $1,567,676
  • The Calendar Year 2021 data includes 438 Facilities that were active franchises throughout the entire Calendar Year 2021 (out of 465 Facilities that were active franchises as of the end of Calendar Year 2021). It does not include (i) 22 Facilities that opened during Calendar Year 2021 and (ii) five Excluded Facilities. It also does not include two Facilities that permanently closed during Calendar Year 2021 (both of which had been open for at least 12 months prior to closing). No Facilities were reacquired by Primrose Schools during Calendar Year 2021.
  • The First Quarter 2022 data includes the 438 Facilities that were active franchises throughout the entire Calendar Year 2021 and First Quarter 2022 (out of 469 Facilities that were active franchises as of the end of First Quarter 2022). It does not include (i) 22 Facilities that opened during Calendar Year 2021, (ii) four Facilities that opened during the First Quarter 2022, and (iii) five Excluded Facilities. It also does not include two Facilities that permanently closed during Calendar Year 2021 (both of which had been open for at least 12 months prior to closing). No Facilities were reacquired by Primrose Schools or permanently closed during First Quarter 2022.

Part 2 – Summary of Annual Gross Revenues of Facilities by Quartile in Calendar Year 2021

  • In Part 2, the Facilities were divided into four quartiles based on the Gross Revenues of each Facility in the year. The “Top 25%” includes the Facilities with the highest Gross Revenues. The “Second 25%” includes the Facilities with Gross Revenues less than the Top 25% but higher than the Third 25%. The “Third 25%” includes the Facilities with Gross Revenues less than the Second 25% but higher than the Bottom 25%. The “Bottom 25%” includes the Facilities with the lowest Gross Revenues.

Calendar Year 2021 (438 Facilities)

Top 25%

  • Number of Facilities:  110
  • Average Gross Revenues:  $2,950,017
  • Number and Percent at or Above Average Gross Revenues:  46 / 42%
  • Median Gross Revenues:  $2,801,824
  • Lowest Gross Revenues:  $2,460,655
  • Highest Gross Revenues:  $5,298,333

Second 25%

  • Number of Facilities:  109
  • Average Gross Revenues:  $2,258,420
  • Number and Percent at or Above Average Gross Revenues:  51 / 47%
  • Median Gross Revenues:  $2,246,099
  • Lowest Gross Revenues:  $2,088,191
  • Highest Gross Revenues:  $2,459,279

Third 25%

  • Number of Facilities:  109
  • Average Gross Revenues:  $1,907,574
  • Number and Percent at or Above Average Gross Revenues:  59 / 54%
  • Median Gross Revenues:  $1,917,390
  • Lowest Gross Revenues:  $1,718,327
  • Highest Gross Revenues:  $2,080,875

Bottom 25%

  • Number of Facilities:  110
  • Average Gross Revenues:  $1,395,605
  • Number and Percent at or Above Average Gross Revenues:  60 / 55%
  • Median Gross Revenues:  $1,435,125
  • Lowest Gross Revenues:  $508,934
  • Highest Gross Revenues:  $1,716,796

Total

  • Number of Facilities:  438
  • Average Gross Revenues:  $2,128,109
  • Number and Percent at or Above Average Gross Revenues:  201 / 46%
  • Median Gross Revenues:  $2,084,533
  • Lowest Gross Revenues:  $508,934
  • Highest Gross Revenues:  $5,298,333

Part 3 – Profit and Loss Statements

  • The following tables set forth the historical average profit and loss statements for certain Facilities based on information reported to Primrose Schools by its franchisees.
  • The Calendar Year 2021 data includes 141 Facilities that were active franchises throughout the entire Calendar Year 2021 (out of 465 Facilities that were active franchises as of the end of Calendar Year 2021). It does not include (i) 22 Facilities that opened during Calendar Year 2021, (ii) five Excluded Facilities, and (iii) 297 Facilities that did not timely submit data or submitted data that was incomplete or otherwise inconsistent with the categories that Primrose Schools has presented. It also does not include two Facilities that permanently closed during Calendar Year 2021 (both of which had been open for at least 12 months prior to closing). No Facilities were reacquired by Primrose Schools during Calendar Year 2021.

Profit and Loss Statement for Calendar Year 2021 (All Included Facilities – 141 Facilities)

Total Gross Revenues:  $2,187,800 (100.0%)

Payroll and Taxes

  • Payroll (excluding taxes):  $833,316 (38.1%)
  • Payroll Taxes:  $97,032 (4.4%)
  • Total Payroll and Taxes:  $930,348 (42.5%)

Brand Fund Fee and Royalty

  • Brand Fund Fee:  $42,173 (1.9%)
  • Royalty Fee:  $148,303 (6.8%)
  • Total Brand Fund Fee and Royalty:  $190,475 (8.7%)

Other Expenses

  • Food:  $85,290 (3.9%)
  • Educational Supplies:  $27,545 (1.3%)
  • Advertising – Local:  $17,410 (0.8%)
  • Bank Charges and Credit Card Fees:  $8,715 (0.4%)
  • Bus Operating Expenses:  $3,897 (0.2%)
  • Bus Leases:  $3,864 (0.2%)
  • Employee Benefits:  $44,014 (2.0%)
  • Accounting Costs:  $6,841 (0.3%)
  • Field Trips:  $3,317 (0.2%)
  • Cleaning Charges:  $27,674 (1.3%)
  • Miscellaneous Taxes and Licenses:  $10,355 (0.5%)
  • Office Supplies and Postage Expense:  $11,382 (0.5%)
  • Printing and Promotional Clothing:  $1,933 (0.1%)
  • Staff Training:  $4,762 (0.2%)
  • Supplies (General):  $7,685 (0.4%)
  • Telephone Expense:  $6,450 (0.3%)
  • Uniforms:  $3,479 (0.2%)
  • Miscellaneous Expenses:  $24,334 (1.1%)
  • Total Other Expenses:  $298,947 (13.7%)

Occupancy Expenses

  • Insurance – General Liability:  $22,554 (1.0%)
  • Maintenance (Building, Grounds, Equipment):  $46,052 (2.1%)
  • Utilities:  $32,288 (1.5%)
  • Total Occupancy Expenses:  $100,894 (4.6%)

Total Expenses:  $1,520,665 (69.5%)

Adjusted Operating Income/Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent (EBITDAR):  $667,136 (30.5%)

  • Some Included Facilities may have received federal or state relief, grants, or other forms of financial assistance or relief in Calendar Year 2021 that are not reflected in these profit and loss statements.
  • “Gross Revenues” includes the total of all revenues generated from any learning, recreational, and child care services and any other activities, products, or services sold or performed by a franchisee, and by persons other than such franchisee, in connection with such franchisee’s business or otherwise at or through its Facility, less sales, use, or service taxes actually collected and paid to the appropriate taxing authority.
  • The data included in this Item 19 is based on information reported to Primrose Schools by its franchisees. This data has not been audited, nor has Primrose Schools independently verified the data it received from the franchisees, although it has no reason to believe that the information provided to it is not complete, correct, and accurate.
  • Some outlets have sold or earned this amount. Your individual results may differ. There is no assurance that you’ll earn as much.

Section VI – Primrose Schools Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇



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