Goldfish Swim School’s first-year revenue in 2006 as a single location was $770,000. In 2010, after the first year of its first franchised location, total revenue reached $2.9 million. In less than 10 years, sales have jumped exponentially. That growth has lured many different types of investors â€” private equity companies, big developers and high net worth individuals â€” despite the steep upfront cost.
The initial investment of starting a Goldfish Swim School franchise is $1.37 million to $3.23 million, which includes a one-time lump sum payment of $50,000 to the franchisor, according to the company’s franchise disclosure document. The fee is $40,000 for a second franchise. The other initial costs are mostly for build out according to the franchisor’s specifications.
Most Goldfish Swim School locations are between 6,000 square feet and 9,500 square feet and are located in suburban strip malls, old big box buildings and light industrial spaces. In addition to the initial franchisor fee, franchisees pay a $10,000 real estate fee that covers corporate advising on real estate selection. Picking the right place can be tricky because it involves building a custom pool, which is a major part of the estimated $1 million to $2.3 million build-out cost.
The size and design of the pools vary around the country, and build out of each location is handled by a host of different contractors, many local to the project. The company does not disclose the specifications of each pool due to competition, McCuiston said. Each build requires a pool pump, filtration system, water quality monitoring, chemical controls and input systems and a heating system to achieve the desired balmy temperature, according to the franchise disclosure document.
To use the Goldfish name and business playbook, franchisees pay the greater of $4,000 or 6 percent of gross sales per month. They also pay 3 percent of gross sales per month for a brand fund contribution, 2 percent of gross sales per month for local advertising and a $700-per-month technology fee.
For 100 locations, the franchisor earns as much as $5 million for one-time franchise fees and nearly the same amount per year in royalties. The parent company’s consolidated net income in 2017 was $2.02 million in 2017, according to its earnings report.
Financial reports and eager investors show that there’s meat left on the bone for franchisees. The average annual gross revenue of each of 78 franchises operating in 2018 was $1.7 million, according to the franchise disclosure document. After average operating expenses of $1.02 million, which does not include the initial investment to start a franchise but does include royalties and other monthly fees, the average yearly income was $709,379. This does not include expenses for rent.
“There’s a high barrier to entry,” McCuiston said, adding that the initial investment, real estate and permitting requirements can dissuade investors, but there are several benefits to signing on as a franchisee. “They like the brand that we’ve built.”
Mark Cory, a franchise placement specialist based in Grosse Pointe, said Goldfish Swim School’s model is unusual in its large upfront investment and requirement that franchisees find a place where they can build a pool. The financial performance of the franchises appears to be solid, he said, but it’s not a business for everyone, especially those lacking significant capital.
“It’s definitely a high margin business, but you’ve got to do a high volume to cover the fixed cost of rent and other fixed expenses,” he said.
As with other companies, a track record of well-performing franchises does not guarantee success for franchisee hopefuls.
“It’s not enough to see that people are making money in the business,” Cory said. “You have to see who they are and how they got there. What did they put into it to get there?”
Goldfish Swim Schools charge a monthly fee of $84 for customers, which comes with one lesson per week. Its target customers are middle- and upper-class families, in high-density areas, with kids 6 years old and younger. It faces competition from local rec centers, YMCAs and other companies, such as Illinois-based Big Blue Swim School and Arizona-based Aqua-Tots Swim Schools.
Its ratio of one instructor per four children and beach-style ambiance at each location attract patrons, McCuiston said. The water is always kept at 90 degrees, and the pools are painted with bright colors and decorated with tropical themes. Making kids feel comfortable makes their parents feel comfortable, and that’s an important selling point in the swim business.
“This is a very personal business and very high touch,” McCuiston said. “Learning to swim is never going to go out of style.”