Take a deep dive into the ins and outs of starting a FEC business with key analyses and insights from industry leaders.
So you want to start a Family Entertainment Center business?
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 are offered. It will take more than bright and creative ideas to start your own family entertainment center business. This simplified guide will help you figure out how to start an FEC. These 10 necessary steps and procedures enable you to kickstart your dream venture and allow you to get the best results.
To start a family entertainment center, one should understand that the attractions are not the products - it's the experience. Learn more about the emerging Experience Economy here. Depending on your business idea, FEC theme, and location, there are also different types of family entertainment center activities to choose from.
From venue to revenue
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:
- Admission fees
- Food and beverages
- Tokens and other game currencies
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 operates 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.
10 Steps to Starting a Family Entertainment Center Business
1. Identify Business Goal & Business Type
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?
2. Determine Target Customers
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:
- Local drive-times – The average distance people will travel within an urban or suburban primary market area to an FEC is about 15 to 20 minutes maximum.
- Demographics (age and household) – Based on the findings on local drive-times and identified target areas therein, how many households and people are there? This information can be accessed at the local Chamber of Commerce, Community Business Office, or the city or state’s website.
3. Make a Feasibility Study
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.
4. Secure Capital & Funding
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…
- Project potential financial performance.
- Provide a good estimate of operating costs for the next 2-3 years.
- Identify a ballpark figure for development costs.
- And Provide justification for total development costs needed to achieve return-on-investment (ROI) to investors.
If you’re looking for funding, here’s a list of 5 Proven Sources of Funding for an Arcade or FEC Business.
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.
5. Create a Business Plan
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.
6. Conceptualize & Design
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 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. Here are 5 Family Entertainment Center Interiors Inspirations to get your creative juices flowing.
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.
7. Get Licenses & Permits
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:
- Zoning approval
- Health permit
- Environmental permit
- Fire department permit
- Special state licenses (for businesses which serve alcohol)
8. Choose the Right Technology
The FEC industry has been heavily impacted by advances in technology in a span of years. Advancements in home video game console technology in the 80s caused a great decline in the ‘Golden Age of Arcades,’ resulting to a huge gap in revenue from $8B in 1981 to $2.1B in 1991.
Since then, almost every touchpoint of the business has been automated. Those that fail to jump on the wagon and follow tech trends cease to continue because they have become irrelevant. However, arcades can now be supercharged with hardware solutions that bring even retro games to the digital age.
Technology is considered a business essential in this digital day and age. Consumers will not tolerate a poor guest experience due to a low-tech business. This is why you need to stay up to date if you want consumers coming over, otherwise it will lead to poor customer reviews and negative advocacy.
When used strategically, business operations and management can be conveniently integrated in a way that reduces operating, labor, and maintenance costs. Most of all, the guest experience is enhanced.
Selecting the right hardware and software for your FEC is just as important as picking the best people for the business. With the right combination of hardware and software, these technological business solutions can already stand as your 24/7 employees.
FEC software should collect data, pinpoint problems, and generate results and notifications in real-time to reduce costs while increasing profitability. In short, the software should simplify the backend of the business.
From a customer standpoint, consumers desire seamless, personalized, socially shareable, and convenient tools that keep them immersed in the experience with little to no disruptions. The speed and immediacy of the experience are critical to your success. In the fast-paced world today, guests are intolerant of wasting time waiting in long lines and outdated or no technology to ease transactions that should be seamless.
9. Hire Your First Team
Hiring the first team for a new business can make or break its success. The number of employees needed to run an FEC can differ from one business to another. It will also vary depending on the business size and location.
In the 2020 FEC Benchmark Series by IAAPA, it was found that employee payroll remains the biggest expense for FECs. This is one of the reasons why business owners must invest in the correct people. Manpower is an asset; wrong hires are liabilities. At the same time, retaining a strong team is more ideal than repeatedly hiring, training, and developing new people.
10. Start Branding & Marketing the Business
As with any new business, developing the branding and marketing plan is crucial to creating top-of-mind awareness of customers. Most FEC owner-operators become too focused on operations, especially family-run, single location FECs; any planning of marketing efforts is done in reactive mode versus proactive mode. This stunts business success.
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