In this exclusive Franchise Chatter FDD Talk post, you’ll learn the following:
Section I – Estimated initial investment (franchise costs) for a Degree Wellness franchise, based on Item 7 of the company’s 2024 FDD
Section II – Initial franchise fee, royalty fee, and marketing fee for a Degree Wellness franchise, based on Items 5 and 6 of the company’s 2024 FDD
Section III – Number of franchised and company-owned Degree Wellness outlets at the start of the year and the end of the year for 2021, 2022, and 2023, based on Item 20 of the company’s 2024 FDD
Section IV – News updates on the Degree Wellness franchise opportunity
Section V – Presentation and analysis of Degree Wellness’ financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2024 FDD, including information on the:
- 2023 percentage breakdown of clients as between members and non-members for the 2 affiliate-owned Degree Wellness locations that were open for the entire 2023 calendar year
- 2023 average number and spend per month by client type for the 2 affiliate-owned Degree Wellness locations that were open for the entire 2023 calendar year
- 2023 average gross revenue, cost of goods sold, gross profit, disclosed expenses, and net operating income for the 2 affiliate-owned Degree Wellness locations that were open for the entire 2023 calendar year
Section VI – Key ratios, comparables, computations, and analyses for the Degree Wellness franchise opportunity (exclusive content for Platinum subscribers)
Section I – Degree Wellness Franchise Costs
- Degree Wellness franchise costs, based on Item 7 of the company’s 2024 FDD:
- Franchise License Fee: $49,500
- Initial Training Fee: $8,000
- Training Program Expenses: $1,500 to $5,000
- Studio Layout, Architect, Engineer, Drawings, and Permits: $8,200 to $20,000
- R/E and Construction Management Fee: $15,000 to $20,000
- Lease – Security Deposit (3 months): $19,564 to $26,728
- Initial Equipment Package: $13,512 to $167,861
- Leasehold Improvements: $143,322 to $262,669
- Furniture, Fixtures, and Equipment: $28,976 to $32,978
- Point of Sale System, Hardware, Software, and Installation: $3,850 to $4,250
- Initial Inventory and Supplies: $10,487 to $12,658
- Professional Fees and Licenses: $2,586 to $6,000
- Presale Marketing: $12,000 to $15,000
- Insurance: $1,146 to $2,172
- Exterior Signage: $8,000 to $15,000
- Additional Funds: $23,910 to $40,000
- Total Estimated Degree Wellness Franchise Costs: $349,554 to $687,816
Section II – Degree Wellness’ Initial Franchise Fee, Royalty Fee, and Marketing Fee
- Degree Wellness’ initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2024 FDD:
- Franchise License Fee: $49,500
- Continuing Franchise Fee: 7% of gross revenues
- Brand Development Fund: currently 1% of gross revenues generated by your Franchised Business over the preceding reporting period
- Local Marketing Requirement: $2,500 per month
- Local and Regional Advertising Cooperatives: currently, $0 per month, unless established
Section III – Number of Franchised and Company-Owned Degree Wellness Outlets
Franchised
2021
- Outlets at the Start of the Year: 0
- Outlets at the End of the Year: 0
- Net Change: 0
2022
- Outlets at the Start of the Year: 0
- Outlets at the End of the Year: 0
- Net Change: 0
2023
- Outlets at the Start of the Year: 0
- Outlets at the End of the Year: 0
- Net Change: 0
Company-Owned
2021
- Outlets at the Start of the Year: 2
- Outlets at the End of the Year: 2
- Net Change: 0
2022
- Outlets at the Start of the Year: 2
- Outlets at the End of the Year: 2
- Net Change: 0
2023
- Outlets at the Start of the Year: 2
- Outlets at the End of the Year: 2
- Net Change: 0
Section IV – News Updates on the Degree Wellness Franchise
Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Degree Wellness Franchise (Item 19, 2024 FDD)
- This Item disclosed the historical performance of each affiliate-owned location that was open for the entire 2023 calendar year (the “Measurement Period”).
- Some affiliate locations sold these amounts. Your individual results may vary. There is no assurance that you will sell as much.
Part 1 – Breakdown of Revenue by Client Type
- Parts 1 and 2 show the percentage breakdown of clients as between members and nonmembers as well as the average spend per month by client type.
- For the purposes of this disclosure Client Type means either a Member who pays a monthly recurring fee, or a Non-Member who pays for services on an a la carte basis. No locations that operated during the entire measurement period were excluded from this table.
Studio 1
- Members: 81%
- Non-Members: 19%
- Total Revenue: 100%
Studio 1
- Members: 75%
- Non-Members: 25%
- Total Revenue: 100%
Average
- Members: 78%
- Non-Members: 22%
- Total Revenue: 100%
Part 2 – Average Spend per Month by Client Type
Studio 1
- Members – Average Number Per Month: 271
- Members – Average Spend Per Month: $157
- Non-Members – Average Number Per Month: 128
- Non-Members – Average Spend Per Month: $79
Studio 2
- Members – Average Number Per Month: 250
- Members – Average Spend Per Month: $129
- Non-Members – Average Number Per Month: 128
- Non-Members – Average Spend Per Month: $84
Average
- Members – Average Number Per Month: 260
- Members – Average Spend Per Month: $144
- Non-Members – Average Number Per Month: 128
- Non-Members – Average Spend Per Month: $82
Part 3 – Total Memberships Pre-Sales and Total Memberships for Studio 3 One Month after Opening
- Part 3 contains information regarding membership sales for the most recently opened affiliate studio as of the date of the disclosure document (“Studio 3”). The affiliate studio opened March 31, 2024.
- For purposes of this table, a “Pre-Sale” means a membership that was sold prior to the studio opening.
- Total Pre-Sales as of 3/30/24: 144
- Total Memberships as of 4/30/24: 189
Part 4 – Profit and Loss Information of Affiliate Studios
- Part 4 below shows the profit and loss information for affiliate locations operating for the “Measurement Period”. No locations that operated during the entire measurement period were excluded from this table.
Studio 1
Gross Revenue: $616,910 (100.0%)
Cost of Goods Sold: $57,840 (9.4%)
Gross Profit: $559,070 (90.6%)
Expenses
- Advertising and Marketing: $26,850 (4.4%)
- Insurance: $6,560 (1.1%)
- Office Expenses: $12,390 (2.0%)
- Payroll Expenses: $144,395 (23.4%)
- Rent and Lease: $51,960 (8.4%)
- Repairs and Maintenance: $5,130 (0.8%)
- Taxes: $4,670 (0.8%)
- Utilities: $17,330 (2.8%)
- Total Expenses: $269,285 (43.7%)
Net Operating Income: $289,785 (47.0%)
Estimated Fees
- Royalties: $43,184 (7.0%)
- Brand Fund: $6,169 (1.0%)
- Total Estimated Fees: $49,353 (8.0%)
Net Income Adjusted, Owner Operator (OO): $240,432 (39.0%)
General Manager Expenses: $46,175 (7.5%)
Net Income Adjusted, Investor: $194,257 (31.5%)
Studio 2
Gross Revenue: $513,610 (100.0%)
Cost of Goods Sold: $40,860 (8.0%)
Gross Profit: $472,750 (92.0%)
Expenses
- Advertising and Marketing: $47,040 (9.2%)
- Insurance: $4,040 (0.8%)
- Office Expenses: $11,860 (2.3%)
- Payroll Expenses: $105,798 (20.6%)
- Rent and Lease: $100,440 (19.6%)
- Repairs and Maintenance: $1,070 (0.2%)
- Taxes: $2,840 (0.6%)
- Utilities: $2,750 (0.5%)
- Total Expenses: $275,838 (53.7%)
Net Operating Income: $196,912 (38.3%)
Estimated Fees
- Royalties: $35,953 (7.0%)
- Brand Fund: $5,136 (1.0%)
- Total Estimated Fees: $41,089 (8.0%)
Net Income Adjusted, Owner Operator (OO): $155,823 (30.3%)
General Manager Expenses: $39,834 (7.8%)
Net Income Adjusted, Investor: $115,989 (22.6%)
Average
Gross Revenue: $565,260 (100.0%)
Cost of Goods Sold: $49,350 (8.7%)
Gross Profit: $515,910 (91.3%)
Expenses
- Advertising and Marketing: $36,945 (6.5%)
- Insurance: $5,300 (0.9%)
- Office Expenses: $12,125 (2.1%)
- Payroll Expenses: $125,097 (22.1%)
- Rent and Lease: $76,200 (13.5%)
- Repairs and Maintenance: $3,100 (0.5%)
- Taxes: $3,755 (0.7%)
- Utilities: $10,040 (1.8%)
- Total Expenses: $272,562 (48.2%)
Net Operating Income: $243,349 (43.1%)
Estimated Fees
- Royalties: $39,569 (7.0%)
- Brand Fund: $5,653 (1.0%)
- Total Estimated Fees: $45,221 (8.0%)
Net Income Adjusted, Owner Operator (OO): $198,128 (35.1%)
General Manager Expenses: $43,005 (7.6%)
Net Income Adjusted, Investor: $155,123 (27.4%)
- Gross Sales means all gross receipts, less tips and sales tax and represents the amount upon which will base your Royalty Fee, Local Advertising Requirement and Fund Contribution under your Franchise Agreement with Degree Wellness.
- COGS means all variable cost inputs to facilitate customer sales, including equipment-related consumables, medical supplies, and other usage-based costs.
- Gross Profit means Gross Sales less COGS.
- Advertising and Marketing means the actual local marketing expenditures of the location. Your requirements will include $12,000 of Pre-Sale Marketing and an annual Local Marketing Requirement of $2,500 per month ($30,000 per year).
- Insurance means the actual amounts expended on insurance in the operation of the Studio.
- Office Expenses means general cleaning supplies/services, office supplies, postage, and software.
- Payroll Expenses means all hourly and salaried labor excluding general managers, including based wages, payroll taxes, and benefits. This definition excludes the cost of multi-unit managers.
- Rent and Lease means base rent and all related NNN (triple net) costs, including common area maintenance, insurance, and tax-related obligations under the Lease.
- Repairs and Maintenance means all standard maintenance items, including HVAC maintenance, electrical maintenance, necessary repair items, and any equipment repairs.
- Taxes means all taxes, including property taxes, incurred in the operation of the Studio.
- Utilities means the following utility expenses electric, water, power, internet, and phone.
- Net Income Adjusted, OO means Gross Proft less all of the aforementioned expenses. This number excludes the costs associated with a general manager and intend to show the income of this studio the franchisee was an owner operator (“OO”). This data does not include or account for any other operating costs or expenses that are not specifically identified in this Explanatory Note.
- Net Income Adjusted, Investor means Net Income Adjusted, OO less the costs associated with a general manager and intend to show the income of this studio the franchisee was an investor. This data does not include or account for any other operating costs or expenses that are not specifically identified in this Explanatory Note.
- Estimated Royalties (calculated at 7% of Gross Sales) means the calculated estimated Royalty Fees a location would have been required to pay had it been a franchise operating pursuant to the Franchise Disclosure Document. These affiliate owned location will contributed to the Fund in the future.
- Estimated Brand Fund Contribution (calculated at 1% of Adjusted Gross Sales) means the calculated estimated Brand Fund expenditures a location would have been required to pay had it been a franchise operating pursuant to the Franchise Disclosure Document.
- Each of the Disclosed Affiliate Locations is located in Jacksonville, Florida or surrounding area, where Degree Wellness’s brand and concept have garnered goodwill and reputation over the years that these Affiliate Locations have been open and operating.
- Most of the Disclosed Affiliate Locations, other than the Recent Location, were open for some time as of the commencement of the 2023 calendar year. As such, the profit and loss information disclosed for certain of the disclosed affiliate locations of this Item did not incur certain of the startup/initial costs that might be incurred when first opening a Studio given their more mature operations.
Section VI – Degree Wellness Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️
- The total estimated initial investment necessary to begin operation of a Degree Wellness studio ranges from $349,554 to $687,816. Much of this gap is due to significant differences in the costs of Initial Equipment Package ($13,512 to $167,861), Leasehold Improvements ($143,322 to $262,669), and Additional Funds for 3 Months ($23,910 to $40,000).
- Using the midpoint of this initial investment range ($518,685) and the 2023 average gross revenue for the 2 affiliate-owned Degree Wellness studios that were open for the entire 2023 calendar year ($565,260), we arrive at an average sales-to-investment ratio of 1.1:1. Keep in mind that this ratio is based on the results of just 2 affiliate-owned studios and might not be representative of future system-wide performance once franchised outlets start reporting their results.
- For purposes of comparison, the average sales-to-investment ratio for Restore Hyper Wellness is 0.8:1, based on the midpoint of its initial investment range ($1,053,799.50) and the 2023 average gross revenue for the 153 franchised Restore Hyper Wellness studios that were open and operating for at least 12 months as of December 31, 2023 ($886,379).
- The average sales-to-investment ratio for dermani MEDSPA is 1.6:1, based on the midpoint of its initial investment range ($590,866.50) and the 2023 average gross revenue for the 9 dermani MEDSPA franchised locations that were open and operating throughout the 12-month period of January 1, 2023 to December 31, 2023 ($974,092).
- The average sales-to-investment ratio for NexGenEsis Healthcare is 4.6:1, based on the midpoint of its initial investment range ($263,122.50) and the 2022 average gross revenue for the 2 affiliate NexGenEsis Healthcare businesses that were in operation at least 12 months as of December 31, 2022 ($1,206,064).
- The average sales-to-investment ratio for Hydralive Therapy is 2.2:1, based on the midpoint of its initial investment range ($286,374.50) and the 2022 average total revenue for the 2 affiliate-owned Hydralive Therapy locations that operated for 2 or more years ($629,698).
- The average sales-to-investment ratio for Hydrate IV Bar is 2.9:1, based on the midpoint of its initial investment range ($346,050) and the 2022 average total revenue for the 2 franchised Hydrate IV Bar locations that were open for more than 1 year as of December 31, 2022 ($1,002,361).
- The average sales-to-investment ratio for 4Ever Young Anti Aging Solutions is 1.8:1, based on the midpoint of its initial investment range ($539,500) and the 2022 average gross revenue for the 6 franchised 4Ever Young centers that were open and operating throughout the entirety of at least the 2022 calendar year ($982,003).
- The average sales-to-investment ratio for DRIPBaR is 0.3:1, based on the midpoint of its initial investment range ($273,462.50) and the 2022 average gross sales for the DRIPBaR franchised locations that were open 12+ months as of the applicable quarter of the year ($10,270 for Q1 + $22,943 for Q2 + $31,397 for Q3 + $30,282 for Q4 = $94,892).
- The average sales-to-investment ratio for GameDay Men’s Health is 6.1:1, based on the midpoint of its initial investment range ($308,496) and the 2022 average gross revenue for the 3 GameDay Men’s Health affiliate locations that operated for all 12 months of calendar year 2022 ($1,892,684).
- The average sales-to-investment ratio for QC Kinetix is 4.4:1, based on the midpoint of its initial investment range ($274,480) and the 2021 average gross revenue for the 10 affiliate-owned QC Kinetix businesses that were operational as of January 1, 2021 ($1,199,803).
- 78% of the 2023 average gross revenue for the 2 affiliate-owned Degree Wellness studios that were open for the entire 2023 calendar year came from members, while 22% came from non-members.
- The 2023 average number of members for the 2 affiliate-owned Degree Wellness studios that were open for the entire 2023 calendar year (260) was 103.1% higher than their 2023 average number of non-members (128).
- The 2023 average spend per month for members for the 2 affiliate-owned Degree Wellness studios that were open for the entire 2023 calendar year ($144) was 75.6% higher than their 2023 average spend per month for non-members ($82).
- The most recently opened affiliate-owned Degree Wellness studio (opened March 31, 2024) had total pre-sale memberships of 144 the day before opening (i.e., March 30, 2024), and total memberships of 189 one month later (i.e., April 30, 2024).
- By far the largest disclosed operating expense for the 2 affiliate-owned Degree Wellness studios that were open for the entire 2023 calendar year was payroll expenses (22.1% of gross revenue), with rent and lease coming in a distant second (13.5% of gross revenue).
- The only other disclosed operating expenses that exceeded 3% of gross revenue were cost of goods sold (8.7% of gross revenue), Royalties (7.0% of gross revenue), and advertising and marketing (6.5% of gross revenue).
- After deducting all disclosed operating expenses, including Royalties (7.0% of gross revenue) and Brand Fund contribution (1% of gross revenue), from gross revenue, we arrive at a 2023 average net income adjusted for an owner-operator of 35.1% of gross revenue, or $198,128 in dollar terms, for the 2 affiliate-owned Degree Wellness studios that were open for the entire 2023 calendar year. Again, keep in mind that this is based on the results of just 2 affiliate-owned studios and might not be representative of future system-wide performance once franchised outlets start reporting their results.
- If the franchisee hires a general manager at an annual salary of $43,005, then the 2023 average net income adjusted for an investor is 27.4% of gross revenue, or $155,123 in dollar terms.
- Degree Wellness charges its franchisees a Royalty Fee of 7% of gross revenues, and a Brand Development Fund contribution of 1% of gross revenue. In addition, franchisees are required to spend at least $2,500 per month on local advertising. All of these fees and expenses were already taken into account in calculating the average net income presented above.
- Based on the total estimated initial investment range for a Degree Wellness studio ($349,554 to $687,816) and the 2023 average net income adjusted for an owner-operator for the 2 affiliate-owned Degree Wellness studios that were open for the entire 2023 calendar year ($198,128), it could take a franchisee from 1.8 to 3.5 years to recoup their initial investment. We’ll have a better estimate of the average investment payback period for franchisees once franchised outlets start reporting their results.
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