FDD Talk 2018: Elements Massage Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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

• Section I – Background information on the Elements Massage franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for an Elements Massage franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for an Elements Massage franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Elements Massage outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Elements Massage’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 average, median, highest, and lowest annual revenue; average and median gross profit percentage; average and median number of gift cards sold; average and median number of massage rooms; and average percent of studios with a hired manager for Elements Massage studios in the system open as of December 31, 2017, and open for at least one year as of January 1, 2017, as well as those Studios that were open for at least 5 years as of January 1, 2017

• 2017 average new client trials per month and average membership conversion rate for the 64 Elements Massage studios that were opened between January 1, 2015 and December 31, 2017, were open as of December 31, 2017, and had operated for 1 month or longer

Section I – Background Information

13 Things You Need to Know About the Elements Massage Franchise

Announces New Business Unit to Purchase and Operate Corporate Studios

1.  In the spring of 2018, WellBiz Brands, Inc. (the parent company of Elements Massage) formally established a separate business unit, Elements Corporate Ventures, to purchase, operate, and build corporate Elements Massage studios. Under this new business unit, Elements Massage has purchased five metro-Denver studios.

2.  The previous vice president of marketing for Elements Massage, Adam Passarelli, will now serve as the vice president of corporate operations for Elements Corporate Ventures. In his new position, Passarelli will oversee the overall operations of the corporate-owned studios.

3.  Jeremy Morgan, CEO of Elements Massage, said, “Corporate-owned studios have great benefits for franchise owners and franchisors alike. By operating corporate-owned Elements studios, we can provide more opportunities to test new ideas related to marketing, research and development, and training before rolling them out system wide. This creates great advantages to our franchise owner network and will allow them to improve service and grow profitability more rapidly.”

Appoints First-Ever “Chief Wellness Officer”

4.  In early February 2018, Elements Massage announced the hiring of Eric Stephenson as the brand’s first-ever “Chief Wellness Officer.” According to Jeremy Morgan, CEO of Elements Massage, the brand “is the first national massage franchise brand to create the role of Chief Wellness Officer.”

5.  Stephenson comes to Elements Massage with 20 years of experience in the massage industry and will work closely with Elements’ 240 plus studios to implement system-wide continuing education and culture programs. Previously, Stephenson was a co-founder of imassage, Inc., a Florida-based education and consulting company dedicated to improving the careers of massage therapists and spa practitioners through customized programs focused on preventing injury and workers’ compensation claims. As Chief Wellness Officer, Stephenson will also serve as a spokesperson for the brand, providing commentary and research surrounding a multitude of topics reinforcing the health and wellness benefits of massage.

6.  Morgan added, “We created this role to demonstrate our commitment to building an industry-leading culture and creating a world-class experience for all Elements studio members and their massage therapists. We’re thrilled that Eric has joined our team. As a Licensed Massage Therapist, Eric’s industry experience will be invaluable as we continue to grow the Elements brand.”

Introduces New Line of Aromatherapy Treatments

7.  At the beginning of April 2018, Elements Massage launched AromaRitual, the brand’s newest line of exclusive aromatherapy treatments. With AromaRitual, Elements clients can experience a personalized, immersive aromatic treatment. AromaRitual launched at all Elements Massage studios nationwide on April 23. Customers are now able to add the treatment as a $10 upgrade to any massage session.

8.  According to Eric Stephenson, Chief Wellness Officer of Elements Massage, “The intention of AromaRitual is to create a personalized aromatherapy experience for Elements clients. Our approach combines olfactory, energetic and dermal absorption techniques based on modern research and ancient principles. At its very core, aromatherapy taps into our sense of smell, which is tied directly to the part of our brain that processes emotion and controls our breathing, heart rate and stress levels. This treatment helps stimulate and balance the human nervous system, often leaving individuals with an overall greater sense of well-being.”

9.  In addition to this new service offering, Elements partnered with Shankara, winner of the 2017 iSPA Innovate Award, to produce three custom scents – Energize, Refresh, and Calm. Elements chose to work with award-winning Shankara because of its reputation for producing the highest quality products within the industry. The three new aromatherapy essences are all-natural, 100% chemical-free, and exclusive to Elements Massage.

10.  Each scent is unique and provides customers with the following experiences:

• Energize – Comprised of lemon, ginger, and geranium, this scent provides a stimulating and invigorating experience that uplifts the senses, while providing balance and air purification for a deep cleanse.

• Refresh – Eucalyptus, peppermint, and patchouli are combined for an enlivened, yet balanced and soothing experience. This naturally purifying and cooling scent freshens the air and supports deeper breathing for total relaxation.

• Calm – Lavender, nutmeg, and black pepper come together for a treatment that is not only uplifting, nurturing, and relaxing, but it also actively helps to relieve muscle pain and treats headaches.

Company History

11.  Before starting Elements Massage, Michele Mehrib worked as a massage therapist who rented out space at a local country club. Unfortunately, Mehrib lost her space at the country club when the club’s new owners did not want to continue offering massage therapy services. Mehrib decided to find her own retail space and opened the first Elements Massage location.

12.  After the success of the first location, Mehrib opened an additional Elements Massage spa in Centennial, Colorado. In 2006, Mehrib signed a contract with Fitness Together Holdings Inc. (now WellBiz Brands) to franchise the Elements Massage concept. Today, the brand has grown into one of the leading massage franchises in the U.S.

Entrepreneur’s Franchise 500

13.  Elements Massage ranked No. 238 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Elements Massage franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Elements Massage’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  195
• Outlets at the End of the Year:  220
• Net Change:  +25

2016

• Outlets at the Start of the Year:  220
• Outlets at the End of the Year:  233
• Net Change:  +13

2017

• Outlets at the Start of the Year:  233
• Outlets at the End of the Year:  245
• Net Change:  +12

Company-Owned

2015

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

2016

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

2017

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

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

Part 1 – Average Annual Revenue and Gross Profit Percentage (Studios Open for 12 Months and 5 Years)

• Part 1 describes 2017 Average Annual Revenue, Average Gross Profit Percentage, Average Number of Gift Cards Sold, Average Percent with a Hired Manager, and Average Number of Massage Rooms, and further describes the number and percentage that met or exceeded the averages for each category (other than Percent of Studios with Hired Manager).

• Part 1 reports these metrics for Studios open as of December 31, 2017, and open for at least one year as of January 1, 2017, as well as those Studios that were open for at least 5 years as of January 1, 2017.

• As of December 31, 2017, there were 245 Studios in operation in the United States, and of that number, 206 were open for at least one year as of January 1, 2017, and 73 were open for at least 5 years as of January 1, 2017.

• Studios are categorized in the tables below based upon annual revenue. The franchisor does not verify the accuracy of the data submitted by its franchisees.

• The Average Annual Revenue amounts are based upon actual data the franchisor requires its franchisees to submit to it on a monthly basis and are defined in the same manner as gross receipts are defined under the Franchise Agreement.

• “Gross receipts” include all of your revenue and receipts, including those taken by cash, credit card, debit card, check, trade, barter or exchange, electronic funds transfer, or any other means of credit, which are derived from the operations of your Studio, including the sale of memberships, massage and bodywork services, gift cards which are not sold under the franchisor’s national gift card programs, merchandise, or any other products or services sold by you, whether sold at your Studio location or from an off-site location. Gross receipts also include the gross amount of redemptions for gift cards sold under the franchisor’s national gift card program.

• Gross receipts exclude sales, use, or privilege taxes paid to the appropriate taxing authority, refunds made to clients, tips received by massage therapists, and gross redemption amount of gift cards sold under any of the franchisor’s national gift card programs.

• In addition, should your business be interrupted for any reason and you are receiving business interruption insurance payments, the gross amount of these payments will be considered to be gross receipts and will be subject to the Royalty.

• The Same Studio Average Revenue Increase measures the increase in revenue on a same-Studio basis, comparing annual revenue for the 2016 calendar year to the 2017 calendar year for each of the 206 Studios shown in the table.

• The Average Gross Profit Percentages are calculated by first subtracting the annual cost of wages paid to therapists and Royalties from annual revenues reported and then dividing the result by total annual revenues. Royalties are calculated at 6% and wages paid to therapists are compiled from Studio records available to the franchisor. No other costs or expenses are considered in the calculation of gross profit reported in the table below. However, you will incur other costs and expenses in connection with the operation of your Studio.

• Average Number of Members as of December 31, 2017, represents the number of participants in the franchisor’s wellness membership program who paid a monthly membership fee in December 2017.

• Percent of Studios with a Hired Manager measures those Studios that have full-time managers who are not owners of the respective Studio franchisee.

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