Palm Beach Tan Franchise: are Profits Worth the $781,000 Cost?
With 546 tanning salons in the US today, of which 329 are franchised-owned, Palm Beach is undeniably the leading tanning salon franchise today. So if you’re considering getting into this industry, Palm Beach Tan seems like an obvious alternative.
But is this really a profitable business? How much can you really make with a Palm Beach Tan franchised salon?
Even though we found that Palm Beach Tan has high profit margins (28% EBITDA margin), your salon revenues would need to be sufficient to cover the hefty investment cost of $781,000 on average.
Indeed, with the average revenue per salon of $502,000 per year, Palm Beach Tan franchises have a 10 years payback, not the best of the salon franchise industry.
In this article we’ll see how much it really costs to start a Palm Beach Tan franchise, how profitable it really is and whether you should invest in it. Let’s dive in!
Key stats
| Franchise fee | $30,000 |
| Royalty fee | 6.0% |
| Marketing fee | 5.5% |
| Investment (mid-point) | $781,000 |
| Revenue per unit | $502,000 |
| Revenue per sq. ft. | $179 |
| Sales to investment ratio | 0.6x |
| Payback period* | 10 years |
| Minimum net worth | $500,000 |
| Minimum liquid capital | $250,000 |
Palm Beach Tan Franchise Business Plan
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5-year financial projections built with the FDD
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What is Palm Beach Tan?
Palm Beach Tan is an American chain of indoor tanning salons offering sunbed tanning and spray tanning services, as well as tanning and skin care product sales.
It was founded in 1990 by Parrish Medley in Dallas and it is currently headquartered in Irving, Texas.
The chain began franchising in 1998 and today it has more than 329 franchises in the US and 546 locations globally.
Palm Beach Tan franchises pros and cons
The Pros:
- Quality training: The brand offers its franchisees an initial training of 57.5 classroom hours and 120 hours of on-the-job training. Franchisees get equipped with the brand’s management information system, customer service, product knowledge and sales practices and techniques.
- Third-party financing: The franchisor has established relationships with third-party lenders to provide its franchisees with financing. It funds franchisees for the franchise fees, startup costs, equipment and ongoing costs.
- Marketing and advertising: Palm Beach Tan has a dedicated marketing and public relations team to help franchisees reach a wide market audience. Franchisees enjoy turnkey marketing resources and tools such as web development, ad templates, social media, national media and email marketing.
- Exclusive territory protection: The brand grants its franchisees an exclusive development market to establish their tanning salons. The parent company does not license any other franchises or operate competing units in the agreed-upon area.
- Extensive corporate and ongoing support: The brand has an experienced management team to help franchisees establish and run their salons smoothly. It helps franchisees with growth strategies and advice, access to a successful referral network, timely procedural updates and data-driven periodic performance reviews.
- Real estate and site selection: The brand provides its franchisees with real estate assistance in identifying viable locations considering high traffic and accessibility. It also helps them with the design and construction of their ideal Palm Beach Tan salons.
- Flexible designs: Palm Beach Tan utilizes simple and flexible franchise designs and the salons can fit into the available real estate opportunities. Also, franchisees can choose to build from scratch or convert an existing franchise, lowering the development costs.
The cons:
- Not a part-time business: The franchise cannot be run part-time or as a side business. The franchisees must operate full-time as per the franchisor’s schedule.
- Not a home-based business: A Palm Beach Tan franchise is not a home-based or mobile-based opportunity. Franchisees need to have fixed office spaces to operate from.
- Not a passive investment opportunity: The franchise does not allow for absentee ownership. It requires franchisees to fully participate in the operations and management of their salons.
- Competition: Main competitors include Tan Republic.
How much does a Palm Beach Tan franchise cost?
You would need to invest around $780,867 to open a new Palm Beach Tan franchise.
This is on the higher end compared to other salon franchises ($450,000).
This amount is disclosed in the Item 7 of the Franchise Disclosure Document (FDD). It’s an average that depends on factors like the salon’s location, size, etc. According to the latest FDD, the investment ranges between $629,857 and $931,877.
Startup costs
The investment covers all the startup costs you would need to start a salon franchise. You must need to pay an initial franchise fee of $30,000 to the franchisor. In addition to this franchise fee, the investment also covers:
- Formation Costs: initial tanning, leasehold improvements, equipment, furniture, computer system, CCTV system, music system, security deposit, permits, business licenses, professional fees, etc.
- Initial Marketing: grand opening, local marketing kit
- Operating Costs: initial inventory of lotion, solution and supplies, insurance, utility deposits, prepaid rent, working capital for the first 3 months, etc.
| Type of Expenditure | Low | High |
|---|---|---|
| Initial Franchise Fee | $30,000 | $30,000 |
| Formation Costs | $502,554 | $785,871 |
| Initial Marketing | $12,000 | $13,000 |
| Operating Costs | $85,303 | $103,006 |
| Total | $629,857 | $931,877 |
What is the revenue of a Palm Beach Tan salon?
A Palm Beach Tan franchised salon generates $501,500 in revenue per year on average.
This is the annual median sales of 300 franchised locations operating in 2021 as disclosed in the FDD. Indeed, there were a total of 325 franchises at the end of 2021, but 300 of them were in full operation for the whole fiscal year.
On average, a franchise makes $6.39 per tanning session, of which $3.61 is from retail sales. If we look at revenue per sq. ft. instead, one Palm Beach Tan makes $179 in revenue per square foot, in line with the average of salon franchises ($270 per sq. ft.).
| Median Gross Sales | $501,546 |
| Median Gross Sales Per Tanning Session | $6.39 |
| Median Retail Sales Per Tanning Session | $3.61 |
| Number of Tanning Session Per Month | 2,331 |
Palm Beach Tan Franchise Business Plan
All the stats: startup costs, profits, breakeven, etc.
5-year financial projections built with the FDD
Excellent 4.8/5 based on 70 reviews
How profitable is a Palm Beach Tan franchise?
We estimate that one Palm Beach Tan franchised salon makes about $138,000 in profits per year (28% EBITDA margin).
This profit margin is in line with salon franchises in general (~25% industry average as per our benchmarks).
Note that Palm Beach Tan does not disclose EBITDA information for its franchises. Instead it does provide EBITDA for company-owned salons instead (27.6% median EBITDA margin), which we used to adjust for franchises in the table below.
| Profit and loss | Amount | % revenue | Source |
|---|---|---|---|
| Revenue | $501,546 | 100% | as per FDD |
| Royalties | $(30,093) | 6% | as per FDD |
| Marketing | $(27,585) | 6% | as per FDD |
| Rent | $(61,200) | 13% | as per FDD |
| Operating costs* | $(244,743) | 48% | as per FDD |
| EBITDA | $137,925 | 28% |
Source: Franchise Disclosure Document 2022
Should you invest in a Palm Beach Tan franchise?
Even though Palm Beach Tan is a profitable business (franchises can reach EBITDA margins of about 28% on average), it gets a little more complex when we add the initial investment into the mix.
Remember, as the franchisee you would have to fund an initial investment of $781,000, either from a bank, investors or your own funds. In comparison, the average Palm Beach Tan franchise makes $502,000 in revenue per year.
So if we were to assume a 15% net profit margin (after all expenses have been paid for), the payback for investing in a Palm Beach Tan franchise is 10 years on average. Although not the best payback for a salon, it’s more or less in line with salon franchises in general (8 years payback on average).
Yet, keep in mind that the numbers presented here are calculated based on the average performance of Palm Beach Tan franchises. Whilst there is no guarantee your salon will perform as well, the payback can dramatically improve if your revenue (and your profits) are higher than the average.
Palm Beach Tan Franchise Business Plan
All the stats: startup costs, profits, breakeven, etc.
5-year financial projections built with the FDD
Excellent 4.8/5 based on 70 reviews
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