February 22, 2024
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In the world of franchising, two distinct sectors have been gaining prominence – childcare and quick service restaurants (QSR). While both offer unique opportunities for aspiring entrepreneurs and savvy investors, it’s essential to weigh the benefits and drawbacks of each. In this blog post, we’ll compare the revenue model of both sectors.
QSR has a transaction revenue model with customers paying for food as they purchase it. Typically relying on consumer discretionary spending, the economy can cause significant unpredictability in sales. Sales targets and achieving profitability depend on a high volume of daily traffic. QSR often needs well over 300 tickets per day (over 100,000 per year) to experience an EBITDA margin of greater than 15%, requiring franchisees to constantly be investing a significant amount of capital in marketing and always be looking for customers.
Childcare has a recurring revenue model with customers often paying in advance of services. Tierra Encantada families pay a deposit to reserve their space, authorize automatic tuition withdrawal from their bank accounts in advance of care, and must provide a four-week notice to end care. Once enrolled, customers typically remain for 3+ years. This extreme customer stickiness results in significant savings for franchisees with their advertising spend, and enables attainment of 20% or greater EBITDA margins with only 150 customers per year. Further, childcare is need-based and has proven to be a recession-proof investment.
That’s easy – it’s childcare. Recurring revenue combined with the approachable 150 customers per year for childcare vs 100,000+ for QSR makes the childcare sector the best franchise business and clear winner on revenue model.