FDD Talk 2021: Relax The Back 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 Relax The Back franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Relax The Back franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Relax The Back franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Relax The Back outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Relax The Back’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average, median, high, and low adjusted gross sales, by quartile, for the 80 Traditional Relax The Back Stores owned by franchisees that were open for the company’s entire fiscal year ended December 31, 2020 and operating in the United States, which excludes 1 franchised Relax the Back Store that closed and then reopened under different ownership within the same calendar year

• 2020 average adjusted gross sales, by month, for the 81 Traditional Relax The Back Stores owned by franchisees that were open for the company’s entire fiscal year ended December 31, 2020 and operating in the United States

• 2020 average, median, high, and low gross profit, personnel costs, marketing costs, and facility cost for the 75 Traditional Relax The Back Stores that voluntarily reported this information to Relax The Back

• 2020 average, median, high, and low total revenue, net income, and owner’s discretionary income for the 74 Traditional Relax The Back Stores that voluntarily reported this information to Relax The Back

Section I – Background Information

14 Things You Need to Know About the Relax The Back Franchise

Launches New Franchise Development Website

1.  At the beginning of February 2021, Relax The Back announced that it was ramping up its franchise development efforts to expand the brand across the country. To help facilitate expansion efforts, Relax The Back has launched a brand new interactive website to help prospective franchisees explore the franchise opportunity in great detail. The new site, www.relaxthebackfranchise.com, features in-depth information about Relax The Back’s business model, its support, costs and fees associated with ownership, and much, much more.

2.  Andrew Cohen, president of Relax The Back, said, “The fact that so many of our franchise owners are opening their second, third, and fourth stores really speaks volumes about the strength of our business model and the level of profitability our franchise owners are experiencing. We’ve been in business for over 35 years and the demand for our products has continued to increase over the years. Now as Americans are becoming more and more focused on overall wellness, Relax The Back is well-positioned to increase profitability and better serve our customers going forward.”

Recession-Resistant Franchise Opportunity

3.  In March 2021, Relax The Back discussed in a blog post how its business model is recession-resistant. The health and wellness market has grown nearly twice as fast as the global economy, according to the Global Wellness Institute. In the $4.5 trillion health and wellness industry, the U.S. has the largest market share, creating opportunities for entrepreneurs to meet the growing demand for services and products that improve our well-being.

4.  For more than three decades, Relax The Back has helped entrepreneurs do exactly that. As a leading specialty retailer in the health and wellness segment, its franchise owners are the go-to resources for people seeking products that support a healthy lifestyle.

5.  In 2021, Relax The Back’s business model is more relevant than ever before. People are far more educated about sleep, recovery from working out, meditation, and now, how to work from home comfortably. All of these areas and more is where Relax The Back has products that truly make a difference.

6.  According to Andrew Cohen, president of Relax The Back, “People come to us because they want a better quality of life – and that’s something we take very seriously. All of our products are focused on delivering health and wellness benefits. During the pandemic, we saw a big increase in consumers shopping for products to help them work from home. This is why our brand recovered so quickly in terms of our sales – we had products that helped people transition into a new working environment.”

7.  One of the benefits of franchising with Relax The Back is that it doesn’t require a large number of customers to be profitable. The products that the company sells are high-end, long-lasting, and designed to deliver specific results that meet the individual needs of customers. This means that Relax The Back’s products are expensive, and as a result, franchise owners enjoy higher margins than other retail businesses that compete on price and for foot traffic.

8.  People come to Relax The Back for a reason. The brand’s franchise owners are there to help, guide, and assist their customers on products that require a level of education before buying. This creates long-lasting relationships and repeat business.

9.  If a customer wants to shop online, Relax The Back franchise owners benefit, too. The online shopping platform is designed to help franchise owners benefit from sales in their geographical area, and this additional revenue stream continues to drive strong sales.

10.  Cohen added, “As a specialty retailer for 35+ years, we continue to experience tremendous client loyalty. Consumers come to us to improve their overall health and wellness and we satisfy their needs through a unique product offering and superior one-on-one personalized experiences. We only offer high-quality products and our franchise owners can take pride in their ability to help clients improve their quality of life. At the same time, we want our franchise owners to be as profitable as they can be – and by keeping the costs low and the business model simple, we’re able to produce really strong results.”

Company History

11.  Relax The Back was founded in 1984 by an osteopath (a physician who treats joints, muscles, and spine pain through the manipulation of muscle tissue and bones) in Austin, Texas. The osteopath wanted to make it easier for patients to find the self-care products necessary to relieve their neck and back pain.

12.  A few years later, in 1987, an entrepreneur named Virginia Rogers acquired the original Relax The Back store and launched a franchising program. Two years later, Coby Dietrick, a former professional basketball player with the San Antonio Spurs, opened the first Relax The Back franchise, in San Antonio.

13.  Over the next decade, Rogers expanded Relax The Back to 59 stores. In 1996, Rogers sold Relax The Back to a franchisee, Dairl Johnson, for $6 million. Johnson continued to expand the franchise until 2016, when he sold the company to Interactive Health, Inc., the parent to the Human Touch subsidiary, for an undisclosed amount. Today, there are Relax The Back locations in the United States and Canada.

Entrepreneur’s Franchise 500

14.  Relax The Back did not rank on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Relax the Back franchise costs, based on Item 7 of the company’s 2021 FDD.

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

• Please click here for detailed information on Relax the Back’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  92
• Outlets at the End of the Year:  89
• Net Change:  -3

2019

• Outlets at the Start of the Year:  89
• Outlets at the End of the Year:  85
• Net Change:  -4

2020

• Outlets at the Start of the Year:  85
• Outlets at the End of the Year:  82
• Net Change:  -3

Company-Owned

2018

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

2019

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

2020

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• The following Item 19 provides information for the 81 franchised Traditional Relax The Back Stores that were open for Relax The Back’s entire fiscal year ended December 31, 2020 and operating in the United States (the “Item 19 Stores”), which excludes: (i) 2 franchised locations that closed in 2020, and (ii) 1 franchised Relax The Back Store that did not constitute a Traditional Relax The Back Store (operating as a store-in-store franchise).

• As used in this Item 19, “Adjusted Gross Sales” includes all revenue (except sales tax collected and paid when due to the appropriate taxing authority, delivery fees charged, and actual customer refunds, adjustments, and credits) which are, or could be, received or earned by you (and/or any affiliate and/or on/for your behalf or benefit):

• (1) by, at, or with respect to a Relax The Back Store;
• (2) which relate to the type of goods or services which are or could be provided, sold, rented, or otherwise distributed at, through, or in association with a Relax The Back Store;
• (3) with respect to any goods or services which are, or could be, distributed in association with the Marks or the Relax The Back System, or the operation of any Similar Business (but Relax The Back’s receipt of any royalties with respect to any Similar Business will not constitute approval of your involvement with any Similar Business); and/or
• (4) with respect to any co-branding activities.

• All sales and billings, whether collected or not, will be included in Adjusted Gross Sales, with no deduction for credit card or other charges.

• All information presented in this Item 19 for franchised Relax The Back Stores is based on the financial reports Relax The Back receives from franchisees. These figures are unaudited, and Relax The Back has not reviewed or verified the information reported to it by its franchisees.

• Many Relax The Back Stores were subject to mandatory closures and/or capacity limits in response to the COVID-19 pandemic, which materially impacted the performance of these Relax The Back Stores. However, other than as necessary to comply with governmental orders and safety guidelines, Relax The Back has not materially changed the operational standards for a Relax The Back Store.

Part 1 – 2020 Annual Adjusted Gross Sales (by Quartile) for Franchised Item 19 Stores

• The following table provides annual Adjusted Gross Sales for 80 franchised Item 19 Stores, which excludes from the total number of Item 19 Stores, 1 franchised Relax the Back Store that closed and then reopened under different ownership within the same calendar year.

• These Relax The Back Stores were divided into 4 quartiles based on the Stores’ annual Adjusted Gross Sales in the calendar year ended December 31, 2020. Each Quartile represents a total of 20 Item 19 Stores.

All Stores

• Average Annual Adjusted Gross Sales:  $940,344
• Low Annual Adjusted Gross Sales:  $242,558
• High Annual Adjusted Gross Sales:  $3,814,864
• Median Annual Adjusted Gross Sales:  $861,422
• Number/Percentage That Met or Exceeded Average:  31 (39%)

Quartile 1

• Average Annual Adjusted Gross Sales:  $1,513,469
• Low Annual Adjusted Gross Sales:  $1,103,183
• High Annual Adjusted Gross Sales:  $3,814,864
• Median Annual Adjusted Gross Sales:  $1,401,071
• Number/Percentage That Met or Exceeded Average:  6 (30%)

Quartile 2

• Average Annual Adjusted Gross Sales:  $962,856
• Low Annual Adjusted Gross Sales:  $861,422
• High Annual Adjusted Gross Sales:  $1,076,249
• Median Annual Adjusted Gross Sales:  $993,120
• Number/Percentage That Met or Exceeded Average:  11 (55%)

Quartile 3

• Average Annual Adjusted Gross Sales:  $763,367
• Low Annual Adjusted Gross Sales:  $691,477
• High Annual Adjusted Gross Sales:  $849,044
• Median Annual Adjusted Gross Sales:  $767,890
• Number/Percentage That Met or Exceeded Average:  10 (50%)

Quartile 4

• Average Annual Adjusted Gross Sales:  $539,516
• Low Annual Adjusted Gross Sales:  $242,558
• High Annual Adjusted Gross Sales:  $684,542
• Median Annual Adjusted Gross Sales:  $565,298
• Number/Percentage That Met or Exceeded Average:  12 (60%)

Part 2 – 2020 Average Adjusted Gross Sales (by Month) for Franchised Item 19 Stores

• January 2020:  $84,094
• February 2020:  $84,101
• March 2020:  $59,855
• April 2020:  $29,149
• May 2020:  $46,734
• June 2020:  $68,574
• July 2020:  $80,974
• August 2020:  $84,334
• September 2020:  $95,451
• October 2020:  $93,659
• November 2020:  $89,261
• December 2020:  $123,976

Part 3 – 2020 Annual Costs for Franchised Item 19 Stores

• The following table provides certain cost data for the 75 franchised Item 19 Stores that voluntarily reported this information to Relax The Back (6 of the Item 19 Stores failed to deliver their annual financial reports reflecting such data).

Adjusted Gross Sales

• Average:  $988,851 (100.0%)
• Median:  $874,581.01
• Low:  $296,611
• High:  $3,852,588
• Number/Percentage That Met or Exceeded Average:  31 (41%)

Gross Profit

• Average:  $532,452 (53.8%)
• Median:  $456,701.00
• Low:  $136,908
• High:  $2,145,013
• Number/Percentage That Met or Exceeded Average:  30 (40%)

Personnel Costs

• Average:  $127,209 (12.9%)
• Median:  $114,620.54
• Low:  $11,346
• High:  $845,883
• Number/Percentage That Met or Exceeded Average:  32 (43%)

Marketing Costs

• Average:  $39,009 (3.9%)
• Median:  $31,579.12
• Low:  $5,891
• High:  $224,901
• Number/Percentage That Met or Exceeded Average:  29 (39%)

Facility Cost

• Average:  $106,266 (10.7%)
• Median:  $110,320.50
• Low:  $38,789
• High:  $258,950
• Number/Percentage That Met or Exceeded Average:  38 (51%)

• Gross profit is calculated as Adjusted Gross Sales less cost of goods sold.

• Cost of goods includes product costs, freight, and delivery.

• Personnel costs include all wages, employment taxes, and benefits reflected on the applicable franchisee’s financial statements. The column identifying the number/percentage that met or exceeded the average is the number of franchisees who had lower personnel costs than the shown average.

• Marketing costs include expenditures for local advertising, marketing, and promotions. It does not include contributions to the Marketing Fund. The column identifying the number/percentage that met or exceeded the average is the number of franchisees who had lower marketing costs than the shown average.

• Facility cost includes rent, CAM, utilities, repair, and maintenance. The column identifying the number/percentage that met or exceeded the average is the number of franchisees who had lower facility costs than the shown average.

Part 4 – 2020 Annual Owner’s Discretionary Income for Franchised Item 19 Stores

• The following table provides certain cost data for 74 franchised Item 19 Stores, which excludes: (1) 6 of the franchised Item 19 Stores that failed to deliver their annual financial reports, and (2) 1 franchised Item 19 Store that applied materially different accounting practices to its calculation of Owner’s Discretionary Income that could cause such figures to be misrepresentative.

Total Revenue

• Average:  $947,839.45
• Median:  $865,395.52
• Low:  $296,611.00
• High:  $1,943,561.77
• Number/Percentage That Met or Exceeded Average:  30 (41%)

Net Income

• Average:  $85,483.01
• Median:  $64,308.77
• Low:  -$122,357.73
• High:  $361,923.53
• Number/Percentage That Met or Exceeded Average:  37 (50%)

Owner’s Discretionary Income

• Average:  $114,541.52
• Median:  $99,975.65
• Low:  -$66,903.69
• High:  $403,312.53
• Number/Percentage That Met or Exceeded Average:  62 (84%)

• “Total Revenue” is calculated as the total gross revenue from the Store’s operations. This is not the same calculation as Adjusted Gross Sales described above and used to calculate the Continuing Royalty Fee and other fees based on Adjusted Gross Sales. As described further above, Adjusted Gross Sales subtracts certain categories of revenue such as delivery fees, customer refunds, adjustments, and credits, which are not excluded from Total Revenue.

• “Net Income” is calculated as Total Revenue, less the total cost of operations of the Store, including lease expenses, payroll, cost of goods sold, interests, amortization, taxes, the Continuing Royalty Fee, and all other associated costs and deductions reflected on the applicable franchisee’s financial statements.

• “Owner’s Discretionary Income” is calculated as Net Income, plus the compensation paid by the owner of such Store to himself/herself and his/her direct family members, including personal expenses, retirement contributions, travel, insurance, auto expenses, and cell phone expenses. These expenses were deducted from the calculation of Net Income, but added back in the calculation above of Owner’s Discretionary Income.

• The numbers provided in this Item 19 are historic numbers for certain Relax The Back Stores. Some franchises have earned this amount. Your individual results may differ. There is no assurance that you’ll earn as much.

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