Among the many products and services businesses can offer these days, experience is one of the most profitable concepts.
It’s no longer good enough to offer goods and services and call it a day. The four stages of economic progress can be easily understood in the evolution of the humble birthday cake. During the agrarian economy, mothers made cakes from scratch using low-cost farm commodities. In the goods-based economy, moms started paying to buy premixed cake ingredients (from a box). Eventually, during the emergence of the service economy, parents ordered cakes from bakeries, which cost about 10x more than the premixed goods, but included the type of icing and cake decoration mothers could not easily do at home. Enter the experience economy, where time-pressed, overworked parents spend $100 or more to book the entire birthday party at businesses that stage events – the cake is only offered as part of the party package.
The emerging experience economy, according to the Harvard Business Review, is the next competitive battleground when it comes to catering to consumer demands.
A family entertainment center (FEC) is a venue where experiences such as games, attractions, and other activities that appeal to different age groups or families as a whole are offered.
Over the years, FECs have evolved to include a variety of attractions in their facilities as opposed to offering a single type of experience. According to the International Association of Amusement Parks and Attractions (IAAPA), these are some qualifiers for establishments to be considered as an FEC:
Entering a business in the experience economy means staging experiences that sell. This entails intentionally utilizing services as the stage and goods as the props to engage customers by creating events that make a mark.
FECs can range from the following indoor or outdoor amusement and attraction centers. Depending on what kind of experience you want to offer, here are family entertainment business ideas worth looking into:
Starting a family entertainment center business includes various steps to success. Before taking that first step, it is imperative to understand how a venue will generate income for your intended business. Guest spending may consist of the following:
The International Association for Amusement Parks and Attractions (IAAPA) statistics show that families go to FECs at least three to five times a year and spend a range of $12 to $22 per visit – and this is just in North America. In a 2019 benchmark series, IAAPA found that guests spent $25 on average at individual location FECs (overall expenses including admission, games, food and beverage, retail, and rentals).
In the same study, IAAPA notes that one-third of individual location FECs reported revenue exceeding $1 million in 2019, with an average profit margin of 14.8% (the estimated profit for the facility operation as a percentage of revenue).
Not only does this support how profitable the FEC business model is, but how effective an avenue it is for creating experiences that convert to revenue.
The ‘why’ fuels the FEC operator. Aside from the money, what value are you expecting from starting an FEC business? Is it for the challenge of developing a thriving business? Is it to provide a venue to entertain families and friends for years? Is it to be at the center of fun while earning?
The ‘why’ is usually tied to an individual’s passion and drive. This same passion, spirit, and energy will come across in everything you do and will inform every single business and operating decision you make, so it is imperative you are clear on ‘why’ you want to start an FEC and enter the industry of fun.
The heart and goal of your business will be the main driver of loyal guests and customer returns. What makes your business unique? Guests can be entertained with the same offering someplace else, so it is the core (the ‘why’ you are in business) of a company that will inspire loyalty and returns.
Having a well-defined business goal will help you envision what type of customers you want to cater to, what type of venue will make these customers participate actively, and what type of experience you want them to enjoy.
The goal points the business in the right direction and leads it to sustained success. The birthday party circuit Discovery Zone had a rough couple of years because of failing to create a seamless guest experience – poorly maintained games, inconsistent event staging, and paying little attention to the adults’ experience– they are the paying customers after all; they matter. It is imperative to set a business goal that is tied to a value system (why you’re in business and how you want to run your operation), stay true to it, and continuously evolve and innovate to achieve it.
According to the Harvard Business Review, before a company can charge admission or put a price on the experience it offers, it must design, market, and deliver the experience excellently.
There are a lot of profitable and sustainable family entertainment business ideas to choose from. You also have two choices: Will you start your own FEC from scratch? Will you purchase an existing FEC franchise?
Members of a family have different interests and are entertained for different reasons. Will your FEC focus on entertaining the family as a whole? Will it be for children only? Is it intended to be an amusement center for adults and teens?
Identifying your target audience will give you ideas on what your FEC needs when it comes to theme, hardware and equipment, activities to add to the venue, and so on.
By analyzing the market population in the area where you intend to open the business, you can better determine the project’s profitability.
Market population analysis factors:
From this data set, compute how much that will equate to gross revenue. To have an initial sense of this, derive from the IAAPA statistics presented on visits:
Conducting a FEC market feasibility study is necessary to identify whether the business idea is good, appropriate, profitable, fundable, and in the right place and time. This will also help you pinpoint the risks and benefits of the business idea – whether to go for it now or shelve it for later.
You are likely going to need to work with an FEC consultant to conduct the study. It can cost from $5,000 to $15,000 based on the level of complexity and locations being studied.
Read our blog about "How to Do a Market Feasibility Study for FECs" here.
A number of FECs are family-owned and operate at one location. There are also FECs that are operated by multiple location owners. As for tapping into other financial resources other than yours, funding is another crucial operational necessity.
To secure funding, you need a business proposal covering your type of FEC, prospective location, your market feasibility study, financial feasibility study, and analytical report. Keep in mind that feasibility studies are written and conducted with prospective investors in mind.
To get capital and funding, business proposals should…
Start-up investments are usually 20 to 30% personally funded. If this is over your capacity, there may be a need for equity investors. These professionals will provide investment dollars in exchange for a percentage of the business.
Market and financial feasibility studies are different from an FEC business plan. The former shows the potential performance of the business venture, taking into consideration that it is managed effectively.
The business plan is the ‘how’ of achieving optimal management and operations that will back the identified potential in the feasibility study. In simpler terms, the business plan is proof that you can make the dream happen.
It is good to note that a positive feasibility study does not necessarily guarantee a successful business. A business plan, however, can help you determine the course of the business – from operations, management, and everything in between to make the possibility a success.
A business plan should include attendance projection, per capita spending, revenues, expenses, replacements, and cost estimates, among other things.
Read our blog about "How to Craft Your First FEC Business Plan" here.
Depending on the type of FEC, scope, audience, and location, an initial design and concept development work is essential to wow prospective investors and lenders. This is generally required for FECs seeking an investment of $2 million dollars or more. For smaller businesses such as a simple indoor soft play, this may not be required in the proposal.
The FEC’s theme should cater to the ‘why’ of the business, its estimated foot traffic, target audience, location, and activities and attractions offered. Urban Air Adventure Park started out as a simple trampoline park, with moms as their customers and kids as their users. Through the owner’s love for data analysis, Urban Air used the business data to evolve into a technology-driven, fully innovative experience – complete with an attractive yet affordable food and beverage offering, thematic designs, and immersive attractions.
When doing this, it is smart to work with professional design firms in the amusement industry to stay consistent with your FEC’s theme. Apart from the theme and design, this is also the point where the floor plan and construction blueprint are pinned down.
In IAAPA’s 2020 Benchmark Series, arcades (redemption and non-redemption) are the most common attractions for FECs and are mostly managed in-house. At the same time, these attractions account for more than 40% of the floorplan.
The statistics also show that arcades represent the top revenue sources for FECs. These data are essential to conceptualizing and designing your business.
Once funding and permits are secured, you can start building the FEC from the ground up. Running any business requires significant paperwork, and there are specific licenses and permits needed to operate an FEC. These depend on location, nature and scope of FEC, among others: