How to Start an Escape Room Business
A fun activity to enjoy with family and friends, as well as a great team-building activity, escape rooms are cropping up all over the country. These experiences provide plenty of challenges and allow competitors to immerse themselves in another world for an hour. If you’re looking for an exciting and relatively affordable business opportunity and you have a love of puzzles and games, then starting an escape room business of your own might be a great idea.
Escape rooms are still relatively new, but this entertaining experience is quickly growing in popularity. Groups of competitors enter a room together where they’re “locked-in” and have approximately one hour to escape the room. To escape, competitors need to search the room for clues and solve puzzles that will guide their progression to their ultimate escape.
These rooms are themed, and the challenge is explained by a story. Competitors may be tasked with escaping in time to rescue a historical figure, prevent an upcoming disaster, or even save their own lives. In keeping with their themes, these rooms are decorated with appropriate items. The room’s coordinator is able to watch the competitors’ progress over video, and competitors can usually reach out to the coordinator for a set number of clues to help them during the game.
Escape rooms are all about the experience that they offer to customers, so be prepared to put plenty of time into planning out your room. Finding the right theme can be a challenge, but a room with a unique theme that appeals to a broad audience can help to drive bookings.
Planning out the room’s clues and puzzles requires creativity and an awareness of human nature. Rooms need to strike a balance between being too challenging, which will frustrate competitors, and too easy, which will leave competitors bored and even allow them to finish the room early. Including too many mentally taxing puzzles can be exhausting, especially when competitors have been in the room for nearly an hour. Leave plenty of time to plan and test out puzzles on friends and family to find the right balance between the puzzles and the room’s storyline.
The escape room industry has undergone extensive growth since 2014. Statistics from the Escape Room Artist show that, as of August 2019, over 2,350 escape room facilities were in business in the United States. In 2018, 2,300 escape rooms were operating, marking significant year-to-year growth, especially since more than 240 businesses in operation in 2018 have since closed.
To understand the larger industry picture, consider that in 2014, only two dozen facilities were in business. Just five years later, that number had reached 2,350 businesses. Since that rapid growth, the industry has begun to mature and level out.
Most of the escape room businesses in operation are independently operated, though some are located within venues like arcades and bowling alleys. Mobile escape rooms have also become a popular business model. Some of these businesses are also expanding into franchises. The largest escape room companies are Escapology, Breakout Games, All in Adventures, Key Quest, and Escape the Room.
The relatively new escape room industry is still evolving, but various trends are emerging. According to Super Escape Room, technology – mainly, the use of virtual reality and augmented reality technology – is one of those trends. Virtual reality technology was initially highly popular, but that popularity has since declined. Virtual reality equipment is expensive to purchase, and it tends to separate participants from their team members, so they lose out on the experience of truly working as a team.
Like the technology used by the Pokemon Go game, Augmented reality has proven to be more effective and long-lasting. This technology is increasingly used in escape rooms, allowing rooms to present more creative and unique puzzles than what could be achieved in “real” life.
Immersive games and escape rooms have also become popular. These experiences blend escape rooms with role-playing and allow participants to make choices that alter the story and their experience. Naturally, these types of escape rooms are more challenging and expensive to create and operate, but because the plot changes depending on participants’ actions, they offer unique experiences every time and can draw back returning customers.
Portable escape rooms have also begun to emerge as a trend. These portable or pop-up games offer many advantages. There aren’t any rental costs to worry about and, because the games are temporarily “installed” at a customer’s space, there aren’t repair costs to worry about. These portable games can cost two times less than the cheapest traditional escape rooms. They’re convenient for customers because you can bring the games to them, so there’s no worry about choosing a location that is too far for customers to travel. Some of these games are even being installed in buses, though this requires higher startup costs and is seen less frequently.
In most cases, escape rooms market to people looking for a fun experience, but the room’s specialty and design can further determine that target market. Some themed rooms may target fans of certain books, like Sherlock Holmes, while others may take on a history theme to appeal to history buffs. Many of these rooms are designed for adults, and they can make great team-building exercises for workplaces. Others are designed for families or teens, and some rooms can be altered to be suitable for a variety of audiences.
Checklist for Starting an Escape Room
If you’re thinking about starting your own escape room, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your business should be to write a detailed business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 3: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a escape room business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
Rental costs will depend on the size of the space and location. Renting space in a high-traffic area, like within a mall, can drive awareness of the business and generate walk-in traffic, too. Keep in mind that these high-traffic areas do carry higher rental costs, though.
Depending on the length of lease you sign, some landlords will pay for a portion of the buildout costs and lower your investment.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
An escape room owner will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located. Due to local fire codes, escape room design may be impacted for the safety of customers.
General local, state, and federal business registrations may be needed, such as a sales tax permit, Employer Identification Number, and Occupancy Permit.
Related: What licenses do escape rooms need?
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start an escape room business is another. The borrower(s) will need to have good credit and personally invest 15-25% towards the total start-up cost to get a loan.
Step 7: Open a Business Bank Account
Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.
Step 8: Get your Marketing Plan in Place
Marketing is an ongoing activity for escape room businesses, especially since customers won’t naturally become returning customers unless the business offers a variety of escape experiences. A new business may benefit from investing in professional photography and videography to create effective marketing materials. Common marketing techniques include social media marketing on Facebook, Instagram, and Pinterest, online advertising with Google, Tripadvisor, Yelp, direct mail, and radio advertising.
Groupon is another source of advertising. While Groupon is very expensive, it does bring people, so it may be best to use it as a short-term marketing strategy to help launch the business or bring in people during slower times.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting an escape room. A few of these include:
– General liability insurance protects the businesses from expenses that might incur if a customer is ever hurt while on the business’ property.
– Commercial property insurance protects the business against losses if the escape room is ever damaged or destroyed by an event like a fire.
– Worker’s compensation insurance helps to cover expenses like medical bills and legal fees that could result if an employee is ever hurt while on the job.
Insurance costs will depend on factors like the business’s location and the number of employees on staff. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the differences in the premiums but also differences between plan exclusions, coverage limitations, and deductibles too.
Step 10: Hire Employees
While a business owner could initially run the business alone, as the business grows and it’s time to expand operational hours, it will be necessary to hire at least a few employees. Indeed reports that escape room front desk agents earn an average of $10.00 per hour, while administrative assistants within the industry earn approximately $12.00 per hour.
Other expenses come along with hiring staff. A business may need to cover worker’s compensation, unemployment insurance, and paid time off for employees.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start an escape room business?
The cost to start an escape room will depend on many factors, but traditional escape rooms cost a minimum of $10,000 to start. Portable escape rooms cost closer to a minimum of $4,000 or $5,000, plus transportation.
Some of the higher-priced costs to start an escape room include:
– Lobby area furniture
– Renovation costs
– Supplies, props, and decor for the room
– Video cameras and viewing system
– Vehicle (for portable escape rooms)
– Working capital to cover the first few months of rent, utilities, payroll, etc.
How much can an escape room business owner make?
Escape rooms can be highly profitable. According to Xola, United States escape room locations earned an average of $317,571 in 2018. That profit had increased from $256,860 in 2017. Xola’s report also found that customers used online checkouts half the time and phone and walk-up purchases the other half of the time. Since the escape room industry is rapidly growing, profits will likely continue to increase.
Are there grants to start an escape room?
It’s extremely rare to find a grant to start a escape room business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What skills are needed to run an escape room?
Starting an escape room doesn’t require a business degree, but certain skills and experiences can help the business succeed.
Experience with escape rooms. A business owner who takes the time to familiarize themselves with escape rooms, take part in a bunch of escape rooms, and possibly even work in the escape room industry will be at an advantage.
Creativity. It takes creativity to come up with room concepts, design rooms, and think of clues. A business owner will rely on their creativity daily in this industry.
Attention to detail. Little details carry great importance in this industry. From ensuring that clues are in place to booking reservations, an escape room owner needs to have an eye for detail.
Customer service skills. An escape room owner will need to provide great customer service, and previous experience working with customers is ideal. Additionally, a business owner should be skilled in working not only with adults but also with kids and teens too.
What is the NAICS code for an escape room business?
The NAICS code for an escape room business is 713990, which is categorized under All Other Amusement and Recreation Industries.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?