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Tutoring & Test Preparation Franchises in the USJuly 2014 1

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Extra credit: Operators will focus on providing


highly qualified staff to combat rising competition

IBISWorld Industry Report OD5609

Tutoring & Test Preparation


Franchises in the US
July 2014

Dmitry Diment

2 About this Industry

15 International Trade

28 Key Statistics

Industry Definition

16 Business Locations

28 Industry Data

Main Activities

Similar Industries

18 Competitive Landscape

Additional Resources

18 Market Share Concentration

28 Annual Change

18 Key Success Factors

3 Industry at a Glance

28 Key Ratios

29 Jargon & Glossary

18 Cost Structure Benchmarks


20 Basis of Competition

4 Industry Performance

20 Barriers to Entry

Executive Summary

21 Industry Globalization

Key External Drivers

Current Performance

22 Major Companies

Industry Outlook

22 Kumon North America Inc.

11 Industry Life Cycle

24 Operating Conditions
13 Products & Markets

24 Capital Intensity

13 Supply Chain

25 Technology & Systems

13 Products & Services

25 Revenue Volatility

14 Demand Determinants

26 Regulation & Policy

15 Major Markets

27 Industry Assistance

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com

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About this Industry


Industry Definition

This industry offers exam preparation and


tutoring services. Academic schools,
colleges and universities are excluded, as
are schools that offer instruction in

Main Activities

The primary activities of this industry are

business, driving, management,


computers, technical and trade areas, fine
arts, athletics and languages. Online-only
operators are excluded from this industry.

Tutoring
Exam preparation

The major products and services in this industry are


Exam preparation
Tutoring

Similar Industries

61143 Business Coaching in the US


Operators in this industry offer short courses and seminars for management and professional development.
61151 Trade & Technical Schools in the US
Operators in this industry offer vocational and technical training in a variety of technical subjects and trades.
61169 Tutoring & Driving Schools in the US
Operators in this industry provide exam preparation and tutoring services, automobile driving schools and
other miscellaneous educational services.
61171 Testing & Educational Support in the US
Operators in this industry provide noninstructional support services for the educational sector.

Additional Resources

For additional information on this industry


www.educationindustry.org
Education Industry Association
tutoring.sylvanlearning.com
Sylvan Learning
www.census.gov
US Census Bureau

IBISWorld

writes over 700 US


industry reports, which are updated
up to four times a year. To see all
reports, go towww.ibisworld.com

WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the US July 2014

Industry at a Glance
Tutoring & Test Preparation Franchises in 2014

Key Statistics
Snapshot

Revenue

Annual Growth 09-14

Annual Growth 14-19

Profit

Wages

Businesses

$861.0m 0.3%

2.1%
$491.4m 1,254

$56.0m

Per capita disposable income

Revenue vs. employment growth

% change

Kumon North
America Inc.
8.7%

16

12

% change

Market Share

4
0
4

Year 06

0
1

08

10

12

Revenue

14

16

18

20

Year

08

10

12

14

16

18

20

Employment
SOURCE: WWW.IBISWORLD.COM

p. 22

Products and services segmentation (2014)

Key External Drivers


Per capita disposable
income
Government funding
for primary and
secondary education

35%

Exam preparation

Percentage of services
conducted online
Number of K-12 students

65%

Number of college
students

Tutoring

p. 4
SOURCE:
WWW.IBISWORLD.COM
SOURCE:
WWW.IBISWORLD.COM

Industry Structure

Life Cycle Stage

Growth

Regulation Level

Light

Revenue Volatility

Low

Technology Change

Low

Capital Intensity

Low

Barriers to Entry

Low

Industry Assistance

Low

Industry Globalization

Low

Concentration Level

Low

Competition Level

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 28

Medium

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Industry Performance

Executive Summary | Key External Drivers | Current Performance


Industry Outlook | Life Cycle Stage
Executive
Summary

The poor economic environment has


hampered demand for the Tutoring and
Test Preparation Franchises industry
over the past five years. Despite a
growing number of primary school and
college students, demand for industry
services was undermined by a high
unemployment rate and low disposable
income. Tutoring and test preparation
services are largely discretionary in
nature; therefore, economic conditions
negatively impacted consumers ability to
pay for industry services. However, the
dip in demand was counteracted by
pervasive concerns about the quality of

Revenue

will expand as people return to work,


but online-only operators still pose a threat
public education, which have historically
driven demand for tutoring as a
supplement to primary education. As a
result, parents have increasingly enrolled
their school-aged children in after-school
tutoring programs over the past five
years. The industry also received a
one-time boost from the American
Recovery and Reinvestment Act, which
enabled schools to draw on a stabilization
fund to prevent budget cuts, limiting the
drop in demand for tutoring services.
Largely as a result of negative trends,
industry revenue is forecast to rise just
0.3% per year on average to $861.0
million during the five years to 2014,

Key External Drivers

Per capita disposable income


Because tutoring and test preparation
services are largely discretionary in
nature, household income levels influence
demand for the industrys services. When
disposable income rises, parents are better
able to afford personal tutoring services
for their children, and adult students are
able to spend more money on tutoring and

although revenue is forecast to grow 1.3%


in 2014 on account of improving
economic conditions.
Industry operators have also faced
escalating competition from online
tutoring and test preparation services
during the past five years, a trend that is
expected to persist moving forward.
Online services often provide less costly
personalized instruction and more
flexible schedules for students and
teachers alike. Furthermore, online
companies are not limited to a local
market and can therefore more efficiently
allocate resources to clients that demand
particular services, such as on-demand
help and instruction. To combat this
competition, tutoring and test
preparation franchises have spent an
increasing proportion of revenue on
teachers and marketing. Accordingly,
industry employment is expected to grow
about at an annualized rate of 6.4%
during the five years to 2014.
During the next five years, industry
growth is expected to strengthen as the
economy improves. In addition to
substantial disposable income growth,
which is expected to make industry
services more affordable for
consumers, the industry will continue
to benefit from expanding markets,
particularly burgeoning college
enrollment. As a result, industry
revenue is projected to grow at an
annualized rate of 2.1% to $953.6
million during the five years to 2019.

test preparation services. Per capita


disposable income is expected to increase
in 2014, representing a potential
opportunity for the industry.
Government funding for primary
and secondary education
The federal governments No Child Left
Behind (NCLB) program provides

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Industry Performance

funding for after-school tutoring services,


which this industry provides. Although
overall government funding for primary
and secondary education is expected to
increase during 2014, funding for the
NCLB program is expected to fall in 2014,
resulting in reduced revenue for tutoring
and test prep services.
Percentage of services conducted online
The industry excludes companies that
exclusively offer online tutoring and test
preparation services. As a result, the
percentage of services conducted online
is a proxy for external competition from
such online services, which are a
substitute for industry offerings. When
the amount of services offered online
increases, the amount of external
competition rises, undermining demand
for industry services. During 2014, the
percentage of services conducted online
is expected to increase, representing a
potential threat to the industry.

Number of K-12 students


A rise in the number of students
(kindergarten through 12th grade) will
raise competition for college
admission, which has been a growing
trend in the past five years. This trend
stimulates demand for exam
preparation and tutoring services, as
students try to gain an edge on the
competition. The number of K-12
students is expected to increase slowly
during 2014.
Number of college students
A rise in the number of college students
increases competition for graduate and
law school admissions, which increases
demand for test preparation services.
Growth in the number of college
students also results in stronger demand
for tutoring for college and licensing
examinations in other fields. The
number of college students is expected
increase during 2014.
Percentage of services conducted online

Per capita disposable income


3

14

12

10

% change

Key External Drivers


continued

Year

08

10

12

14

16

18

20

Year 05

07

09

11

13

15

17

19

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Dip in demand

A weak economic environment, coupled


with escalating competition from online
tutoring and test preparation, has
hampered industry growth since the
recession. During the past five years, the
high unemployment rate, which peaked
at 10.6% in 2010, diminished demand for
industry services, as students unable to
find work found more free time to study
on their own and unemployed adults had
more time to help their children study.
Furthermore, anemic employment
growth undermined disposable income
and negatively impacted consumer
spending, especially on personalized
industry services. However, continued
concerns about the quality of public
education and a temporary increase in
federal funding prevented industry
revenue from declining more severely
during the period. Consequently,
IBISWorld expects revenue for the
Tutoring and Testing Preparation

Franchises industry to rise just 0.3% per


year on average to $861.0 million during
the five years to 2014. However, revenue
is forecast to grow for a second
consecutive year in 2014, as improving
economic conditions push revenue
upward 1.3%.

Many students use tutors to help boost


their chances of admission into a
preferred college. During the past five
years, a growing number of high school
graduates created intense competition for
admission to the nations top universities.
Subsequently, this trend has positively
impacted demand for tutoring and
test-preparation services. At the same
time, however, a growing number of
colleges are making standardized tests an
optional component of admission. The
industry earns a large proportion of its
revenue from services that prepare
students for such tests; therefore, this
trend has negatively impacted demand
for industry services.

Despite the growing number of K-12


and college students, industry revenue
has languished during the past five years
in line with the economic contraction and
subsequent slow recovery. Although the
unemployment rate has declined since
peaking in 2010, it has remained
significantly above its prerecessionary
rate. Concurrently, disposable income
declined for the first time in nearly two
decades and grew anemically during the
duration of the period. High
unemployment and weak disposable
income growth undermined consumers
ability to pay for industry services, as
tutoring and test preparation services are
largely discretionary in nature.

Industry revenue
16
12

% change

Current
Performance

8
4
0
4

Year 06

08

10

12

14

16

18

20

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Educational concerns
and government
funding

Concerns about the quality of public


education have historically driven
demand for tutoring as a supplement to
primary school education. Federal policy
has highlighted these problems with its
emphasis on testing and accountability in
schools. Parents of school-aged children
are increasingly enrolling them in
afterschool tutoring programs to meet
personal education standards that are
sometimes well above those delivered by
the standard school system. Such
demand is not considered discretionary
by many consumers and prevented a
more drastic dip in demand during the
recession and slow recovery.
This industry benefits from federal
funding for elementary and secondary

Competition squeeze

The industry has faced escalating


competition from online tutoring and
test preparation services during the five
years to 2014. Online services can
provide less expensive personalized
instruction and more flexible schedules
for students and teachers alike. Because
online companies are not limited to a
local market, they can more efficiently
allocate resources to clients that demand
particular services, such as on-demand
help and instruction. In particular,
online competitors are able to hire
workers in overseas countries for
relatively low wages and offer tutoring
services in the domestic market. This
circumstance has enabled online
companies to lower their prices,
conflicting with traditional industry
pricing models. To combat this
competition, industry operators have
diversified services, including investing
in computerized software and
implementing their own online
education systems, to attract clients at
various price-points. In addition,
operators boosted their marketing
initiatives to differentiate their products

schools. In 2009, the American


Recovery and Reinvestment Act (ARRA)
gave the education sector a muchneeded boost. As part of the package,
schools were able to draw on a
$54.0-billion stabilization fund to
prevent budget cuts. These funds were
desperately needed, since many states
suffered budget shortfalls and made
budget cuts in every area that they
could. While the ARRA helped sustain
the industry early in the five-year period,
IBISWorld expects education boards to
provide limited funding in core areas
and cut spending on educational support
services in 2014, counteracting
improving economic conditions that are
expected to push the industry to growth.

To

combat rising
competition, operators
have boosted marketing to
emphasize teacher quality
by emphasizing teacher quality and the
benefits of their programs.
An emphasis on teacher quality has led
some operators to hire more teachers.
Consequently, employment is expected to
expand at an annualized rate of 6.4% to
53,436 workers over the five-year period.
Wages, too, have risen, albeit at a slower
rate of 4.5% per year on average, as the
industry has continued to favor the
traditional approach of part-time
employment, keeping the average wage
relatively low. Although industry profit
has risen since bottoming out in 2009,
wage growth and stagnating revenue
throughout much of the period have
squeezed profitability. Fixed costs like
rent, utilities and administration limited
the adjustments that operators could
make to their business models.

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Industry Performance

Benefits of
franchising

Following the downturn, prospective


business owners have been more wary of
opening independent businesses. Instead,
they have turned to proven business
models like the companies in the Tutoring
and Test Preparation Franchises industry.
These operators come with a complete
business strategy and a recognizable
brand like Kumon or Sylvan Learning
Center. Consequently, the number of
industry establishments is expected to
increase at an annualized rate of 3.2% to
2,967 during the five years to 2014.

National brand recognition and an


aggressive business strategy have made
franchises increasingly popular over the
past five years. Franchises are able to
offer lower prices due to their ability to
purchase in bulk. For example, operators
receive educational support materials
through their franchises at much lower
prices than they would receive if they
operated independently. In addition,
operators do not have to spend time
marketing their services, making
franchises beneficial.

Industry
Outlook

Improving economic conditions and


rising student enrollment are expected to
propel the Tutoring and Test Preparation
Franchises industry to growth during the
next five years. Moreover, improving
access to credit is expected to open up
opportunities for new franchises to open
their doors and supply services. However,

the continued movement toward onlineonly services is anticipated to impede


industry expansion. Nonetheless, positive
drivers will likely outweigh rising
competition, with revenue forecast to
increase at annualized rate of 2.1% to
$953.6 million during the five years to
2019, including growth of 2.2% in 2015.

Demand expansion

As the US economy strengthens, demand


for industry services is expected to rise.
The unemployment rate is forecast to
decline 1.1% during the next five years,
approaching its historical average by the
end of 2019. Likewise, per capita
disposable income is projected to
accelerate, rising at a 2.2% annualized
rate during the period. Consequently,
consumers are expected to have more
money to spend on discretionary services,
including tutoring and test preparation.
As a result, the industry is expected to
experience five consecutive years of
revenue growth through 2019.
In addition to improving economic
conditions, demand for educational
support services is expected to benefit
from continued enrollment growth in
elementary and secondary schools as
well as higher education during the next
five years. During the recession,

Working

consumers will
have less study time, but
higher incomes will offset
demand declines
enrollment in higher education grew as
people unable to find jobs went back to
school. Although this trend is expected
to slow as the unemployment rate
declines, rising employment and
disposable income levels will also enable
families to better pay for college
educations, causing the number of
college students to grow at an even
faster rate. During the five years to 2019,
college enrollment is anticipated to
increase 1.1% per year on average to
about 22.3 million students, spurring
demand for industry services as a result.

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Industry Performance

Demand expansion
continued

Parents have also been enrolling their


children in tutoring programs at
younger ages to help their children
progress academically. Industry player
Kumon, for example, has attributed the
success of its preschool program to this
strong enrollment growth.
Consequently, the projected 0.7%
average annual growth in the number of
K-12 students during the next five years,

coupled with the rising enrollment of


younger students, is expected to benefit
industry operators. This growing
market, in particular, is expected to lead
to an increase in the number of tutoring
and test preparation franchises during
the five years to 2019. IBISWorld
forecasts that the number of industry
establishments will rise at annualized
rate of 3.1% to 1,458 by 2019.

Competition
pressuring
profitability

Online companies that are developing


study tools to compete with industry
offerings will undermine growing demand,
however. Online operators are able to offer
lower prices for similar tutoring and test
preparation services because of the low
fixed cost and unlimited market range of
online operations. Consequently, industry
operators will be forced to provide more
value-added services to justify higher
prices, in addition to running more
extensive marketing campaigns.
The growing number of industry
franchises will also result in more

competition from similar tutoring and


test preparation businesses. Meanwhile,
the industry is anticipated to continue
hiring more employees to sway clients
from choosing depersonalized online
tutoring and test preparation services.
Industry employment is forecast to
grow 3.5% annually on average to
63,596 people in the five years to 2019.
While the industry is expected to
become more profitable on account of
rising demand for services, growth is
expected to be marginal as wages
outstrip revenue.

Further challenges

More colleges are making standardized


tests an optional part of admission.
Currently, more than 800 colleges no
longer require the SAT (Scholastic
Assessment Test) or ACT (American
College Testing) exams. Furthermore, a
study commissioned by the National
Association for College Admission
Counseling and led by Harvards dean of
admissions found that the SAT and ACT
tests were not accurate measures of
students true abilities. The industry
earns a large proportion of its revenue
from services that prepare students for
these tests. Therefore, any substantial
move away from the SAT, the ACT or

Schools

moving away from


the SAT and ACT may hurt
future demand for industry
services
other standardized tests will hurt this
segment substantially.
Legislation to overhaul college loans
will also affect the industry over the next
five years. Under recent legislation aimed
at keeping college costs down and
increase transparency, colleges and
universities must report more information

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Industry Performance

Further challenges
continued

about their costs to the Department of


Education. Regulations deal with
textbooks, tuition and fees, alumni
activities, fire safety, graduation rates and

various other areas. Such changes may


boost student fees and, as a result, reduce
students ability to spend money on
industry services moving forward.

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Industry Performance
The market for tutoring and test
preparation is expanding

Life Cycle Stage

Companies are offering new types


of products and services

% Growth in share of economy

The industrys contribution to the


economy is projected to rise

20

Maturity

Quality Growth

Company
consolidation;
level of economic
importance stable

High growth in economic


importance; weaker companies
close down; developed
technology and markets

15

Key Features of a Growth Industry


Revenue grows faster than the economy
Many new companies enter the market
Rapid technology & process change
Growing customer acceptance of product
Rapid introduction of products & brands

10

Quantity Growth

Many new companies;


minor growth in economic
importance; substantial
technology change

Tutoring & Test Preparation Franchises


0

Business Coaching
Trade & Technical Schools

Computer Stores
Public Schools

Private Schools

Decline

-5

Shrinking economic
importance

-10
-10

-5

10

15

20

% Growth in number of establishments


SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Industry Life Cycle


This

industry
is G
 rowing

The Tutoring & Test Preparation


Franchises industry is in the growth
stage of its life cycle. During the ten
years to 2019, industry value added
(IVA), which measures the industrys
contribution to overall economic growth,
is expected to expand at an average
annual rate of 4.0%. Gross domestic
product, meanwhile, is projected to grow
at an annualized rate of 2.5% over the
same period, indicating that the industry
is expanding at a faster rate than the
overall economy.
The market for industry services is
expanding as student enrollment rises in
primary and secondary education. For
example, K-12 students, the largest
market for industry services, are expected
to grow at an average annual rate of 0.7%
to more than 57.5 million during the next
five years. Likewise, as the economy
continues to recover, the number of
college students is forecast to increase at

an annualize rate of 1.1% to an estimated


22.3 million over the five years to 2019.
In addition, these markets are expected
to be better able to afford industry
services as the economy improves.
Although competition from online
operators will limit expansion and
pressure service pricing, the industry is
responding through higher-quality
offerings. Industry operators have hired
more employees during the past five
years, and this trend is expected to hold
moving forward. Over the ten years to
2019, IBISWorld expects industry
employment to grow 5.0% per year on
average, while wages will increase at an
annualized rate of 4.0% over the same
period. This increase in wages a major
driver of the industrys growing
contribution to the overall economy, as
operators look to meet escalating market
demand for tutoring and test preparation
services by hiring more workers.

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Products & Markets

Supply Chain | Products & Services | Demand Determinants


Major Markets | International Trade | Business Locations

Supply Chain

KEY BUYING INDUSTRIES


61111a

Public Schools in the US


Under NCLB, many public schools are required to offer students free tutoring.

61111b

Private Schools in the US


Schools often provide tutoring on an as-needed basis for students.

61131a

Colleges & Universities in the US


Universities provide tutoring services for students to supplement lectures.

61131b

For-Profit Universities in the US


Universities provide tutoring services for students to supplement lectures.

9901

Consumers in the US
Consumers use this industry for tutoring services and preparation for standardized
examinations.

KEY SELLING INDUSTRIES

Products & Services

44312

Computer Stores in the US


Computer hardware and software are used for training and administrative services provided by
this industry.

45121

Book Stores in the US


Teachers and students use books in studying.

45321

Office Supply Stores in the US


Tutoring and test prep franchises use stationery and office supplies.

53112

Commercial Leasing in the US


Tutoring and test preparation firms generally rent office or retail space in which to teach
classes.

Exam preparation
Accounting for about 35.0% of industry
revenue, exam preparation services
include preparation for college entrance

exams and professional examinations.


During the past five years, this segment
has grown as a percentage of industry
revenue as an increasing number of

Products and services segmentation (2014)

35%

Exam preparation

65%
Tutoring

Total $861.0m

SOURCE: WWW.IBISWORLD.COM

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Products & Markets

Products & Services


continued

students prepare for standardized testing


and compete for college admission. K-12
students generally use exam preparation
services for the SATs, ACTs and other
placement exams for college classes.
College students use industry services for
graduate school admissions exams such
as the GMAT, LSAT and MCAT exams.
Tutoring
Tutoring services represent the largest
percentage of industry revenue at
65.0%. Growing concerns about the
quality of public education is driving

Demand
Determinants

Disposable income
Per capita disposable income is key to
determining demand for tutoring and
test prep services. As disposable income
increases, more consumers are able to
afford additional tutoring and test
preparation services, which are
discretionary. However, when disposable
income is low, consumers will seek less
costly test preparation alternatives, such
as online programs and services.
Government assistance and policy
Government funding for education is an
important determinant of demand for
industry services. During times of low
government funding for education,
individuals will seek tutoring and test
preparation services to supplement
available education at public schools.
However, when government funding for
education is high, schools and
universities will provide more
individualized tutoring services, which
may reduce the need for consumers to
find outside help. Because funding for
education is largely determined at the
state and municipal levels, this factor
varies significantly on a regional basis.
Nonetheless, broad changes in
education requirements and spending at

demand in the industry. Private tutoring


services have become an increasingly
popular service due to the rising
number of students and increasing
academic competition. During the past
five years, the number of K-12 and
college students has grown steadily.
Tutoring services are more popular
among K-12 students due to customers
limited access to educational resources.
College students generally have more
access to on-campus tutoring services
and thus represent a smaller market for
industry services.

the federal level have the capacity to


impact the industry as a whole. Federal
government requirements under the No
Child Left Behind Act of 2001 (NCLB)
have stimulated industry demand. The
NCLB requires school districts to
provide free tutoring to
underperforming children from lowincome families that attend Title I
schools. A school is in need of
improvement if it fails to make adequate
yearly progress according to established
benchmarks. As schools have fallen
behind, demand for tutoring has
increased, thereby benefiting this
segment of the industry.
Online resources
The continued movement to online
services is increasingly siphoning
demand from in-person tutoring and test
preparation services. Online tutoring and
online test preparation resources are
becoming much more accessible and are
posing a threat to the industry, especially
as the quality and specificity of these
services increases. As the percentage of
services conducted online grows,
consumers will turn to online services for
supplementary tutoring, undermining
demand for the industry.

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Products & Markets

Major Markets

Major market segmentation (2014)

30%

College students

70%

K-12 students

Total $861.0m

International Trade

SOURCE: WWW.IBISWORLD.COM

K-12 Students
K-12 students represent the largest market
for industry services, accounting for about
70.0% of total industry revenue. During the
past five years, this market has grown as a
percentage of industry revenue as more
parents seek to provide their children with
an advantage in an increasingly
competitive academic environment. K-12
students use tutoring services to improve
academic skills and receive better grades in
preparation for college applications. At the
same time, K-12 students use exam
preparation services for specific
standardized tests, such as the SATs and
ACTs, which are required by many
universities for admission.

College students
College students represent about 30.0%
of the industrys revenue. During the past
five years, this market has declined as a
percentage of industry revenue because
online resources have increasingly
become available to college students.
These students use exam preparation
services for standardized testing related
to graduate school applications for
business school, law school, medical
school and other graduate programs.
While some college students use the
industrys private tutoring services,
on-campus tutoring services are offered
through universities, reducing demand
from this market.

Due to the service-based nature of


industry services, there is no
international trade in this industry.
Furthermore, because online services
are not included in this industry, the
use of international tutors by

companies to provide services to


students in the United States is not
considered relevant to the industry. As
a result, only revenue from services
provided within the United States is
included in this industry.

Tutoring & Test Preparation Franchises in the USJuly 2014 16

WWW.IBISWORLD.COM

Products & Markets


Business Locations 2014

West
New
England

AK
0.3

Great
Lakes
WA

ND

MT

3.1

Rocky
Mountains
ID

OR
1.2

West NV
0.6

1.8

SD
0.1

WY

0.4

MN

0.1

0.3

Plains

CO

1.1

KY

0.5

OK
0.7

NC
2.6

TN

AZ

NM

1.8

0.5

Southwest
TX
6.0

HI
0.6

Additional States (as marked on map)


1 VT

2 NH

3 MA

4 RI

5 CT

6 NJ

7 DE

8 MD

0.4
1.4

0.6

4.1

2.8

0.2

SC

Southeast

0.5

MS

AL
0.7

1.0

GA
3.7

0.4

LA
1.1

FL
6.7

Establishments (%)

0.4

2.7

AR

0.2

1.2

16.1

WV VA
2.9

0.9

1.1

CA

West

2.8

MO

KS

2.5

OH

1.7

4.0

3.2

IN

IL

0.4

UT

PA

2.5

0.6

0.7

1 2
3
NY
8.5
5 4

MI

1.8

IA

NE

0.2

WI

ME

MidAtlantic

9 DC
0.5

Less than 3%
3% to less than 10%
10% to less than 20%
20% or more
SOURCE: WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the USJuly 2014 17

WWW.IBISWORLD.COM

Products & Markets

Distribution of establishments vs. population


30

20

10

Southwest

Southeast

Rocky Mountains

Plains

New England

Mid-Atlantic

Great Lakes

0
West

The geographic spread of this industry is


consistent with the population
distribution in the United States;
establishments are generally located in
heavily populated regions. Industry firms
tend to be located closer to areas with
many academic institutions. The highest
concentrations of establishments are in
the West and Mid-Atlantic regions.
Demand for tutoring and test
preparation is also influenced by per
capita disposable income. Thus, more
establishments are located in areas with
higher disposable income. Higher
disposable income in the Mid-Atlantic
contributes to a larger concentration of
industry revenue in the region. The
region accounts for 24.3% and 19.2% of
revenue and establishments,
respectively. The Mid-Atlantic region
also has a notably larger proportion of
employees than establishments,
indicating that the average firm in this
region is larger. Despite a population
share of about 15.6%, the region
employed 21.0% of all people working in
the industry.
The West has the largest share of
establishments in this industry,

Business Locations

Establishments
Population
SOURCE: WWW.IBISWORLD.COM

accounting for 21.9% of the total number


and 21.5% of industry revenue. The
majority of establishments in this region
are located in California, which is home
to a high number of academic
institutions. California alone accounts for
about 16.1% of establishments and 17.2%
of total industry revenue.

WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the US July 2014

18

Competitive Landscape

Market Share Concentration | Key Success Factors | Cost Structure Benchmarks


Basis of Competition | Barriers to Entry | Industry Globalization
Market Share
Concentration
Level
Concentration

in
this industry is L ow

Key Success Factors


IBISWorld

identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:

Cost Structure
Benchmarks

The Tutoring and Test Preparation


Franchises industry has low market
share concentration, with the four
largest companies accounting for less
than 20.0% of total revenue. The
industry has a large number of similarsized firms that cater to the US market.
Low barriers to entry and increasing
demand for test preparation services are
encouraging new operators to enter the

industry. As a result, enterprise numbers


have risen at an average annual rate of
3.1% over the five years to 2014.
Industry firms that specialize in tutoring
services are slightly more fragmented,
and some firms serve a specific
geographic region. However, due to the
nature of standardized testing, firms
that specialize in test preparation tend
to serve a wider region.

Understanding government
policies and their implications
Establishments need to know how they
can benefit from various government
policies on education, most importantly
the No Child Left Behind Act.

factor is particularly important in exam


preparation and tutoring.

Having a high prior success rate


(including completed prior contracts)
Establishments that have a high success
rate for formers students will find it
easier to attract new students. This

Having a good reputation


In order to attract students,
establishments in this industry must
have a good reputation for the quality
of training provided.

Profit
Industry profit, measured as earnings
before interest and taxes, is estimated to
account for 6.5% of revenue in 2014.
Compared with the entirety of the
education sector, which is largely run on
a nonprofit basis, this is relatively high.
During the past five-year period, profit
margins bounced back somewhat after
contracting during the recession, as
declining revenue hampered operators
bottom lines. In 2009, average industry
profit stood at just 4.2% of revenue.
Nonetheless, profit margins remain
below prerecessionary highs and are
expected to continue to remain
pressured. As competition from online
services has escalated, companies have
spent an increasing proportion of
revenue on wages, which has impeded
profit growth.

Wages
The Tutoring and Test Preparation
Franchises industry is service oriented,
and the majority of revenue is dedicated
to wages as a result. IBISWorld estimates
that wages will total about 57.1% of
revenue in 2014. During the past five
years, slowing industry growth and
demand for more personalized attention
have resulted in a significant increase in
wages as a share of revenue, from about
46.4% of revenue in 2009. In particular,
competition from online tutoring and test
preparation businesses has resulted in a
higher emphasis on staff quality at
learning centers. IBISWorld expects
these trends to persist during the next
five year, with wages rising to an
estimated 61.1% of revenue during the
next five years as employment growth
outpaces revenue growth.

Having a high profile in the market


Establishments with a high profile may
find it easier to attract students.

WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the US July 2014

19

Competitive Landscape

Purchases
Companies are expected to spend an
estimated 9.6% of industry revenue on
purchases in 2014. Franchised
establishments benefit from buying most
materials through the larger franchise of
which they are a part. This helps reduce
purchases costs because franchise
organizations are able to procure supplies
in bulk. Furthermore, as wage costs have
skyrocketed, companies have cut back
spending on educational materials during
the five years to 2014, particularly
because an increasing amount of
information can be sourced and
distributed online.
Rent and utilities
Expenditure on rent and utilities,
estimated to account for 8.8% of
industry revenue in 2014, are

significant because industry operators


require physical locations to deliver
tutoring and test preparation in person.
The cost of utilities has risen over the
past five years. The price of electricity
has increased steadily, growing each
consecutive year since 2004. Water and
gas prices have also climbed, due to
higher input prices such as coal. Rent
expenses also include property taxes
and property insurance. Additionally,
rental costs are up, due to low rental
vacancy rates in commercial space,
which places a premium on price per
square foot.
Marketing
Marketing costs make up about 3.3% of
industry revenue. Companies spend a
significant amount on extensive
marketing campaigns because they

Sector vs. Industry Costs

Percentage of revenue

Cost Structure
Benchmarks
continued

Average Costs of
all Industries in
sector (2014)

Industry Costs
(2014)

100

6.5

6.5

80

31.2
57.1

60

Profit
Wages
Purchases
Depreciation
Marketing
Rent & Utilities
Other

19.4
40

20

2.6

2.8
8.5
29.0

3.0

9.6
3.3
8.8
11.7
SOURCE: WWW.IBISWORLD.COM

WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the US July 2014

20

Competitive Landscape

Cost Structure
Benchmarks
continued

benefit each franchise. Many reach out


to school counselors, teachers and
parents to garner as much business as
possible. Additionally, franchisees pay
a franchising fee, a portion of which is
dedicated to marketing the parent
companys brand.

Other costs
Depreciation, legal fees and administrative
expenses make up the majority of
remaining industry costs. Overall, these
costs are relatively steady as a share of
revenue from year-to-year because they
can be anticipated ahead of time.

Basis of Competition

Internal competition
Firms in the tutoring and test
preparation industry compete heavily on
quality. Industry franchises must
establish a reputation for quality, which
is highly attractive to students looking
for direct results from test preparation.
At the same time, parents that seek
tutoring services for their K-12 children
also consider a companys reputation
when investing in the future of their
children. As a result, industry operators
must hire highly skilled employees that
are experts in the fields that they tutor.
Also, instructors must be highly
proficient in effectively teaching their
respective subjects.
Competition among the test
preparation segment is higher due to the
standardized nature of the industry.

Students will seek the industry operator


with the highest reputation for success
and the highest results for important
standardized tests, such as the SATs and
ACTs, for K-12 students.

Level & Trend


 ompetition
C

in
this industry is
Mediumand the
trend is I ncreasing

Barriers to Entry
Level & Trend
 arriers to Entry
B

in this industry are


Lowand I ncreasing

The Tutoring and Test Preparation


Franchises industry has low barriers to
entry. The most significant barrier to
entry is competition among industry
firms that already have an established
reputation for quality. Franchises in this
industry rely on their name brand and
reputation to attract students investing in
their education. However, individual
operators are able purchase franchise
rights with relative ease and are able to
benefit from the companys established
reputation as a result.
Capital investment required to start a
tutoring or test preparation franchise is
relatively low. Besides spending on rent

External competition
The industry is facing increasing
competition from companies that provide
tutoring and test preparation services
solely online. Online tutoring has become
more popular during the past five years
and poses a threat to traditional tutoring
and test preparation services. At the same
time, more online courses have become
available for test preparation and for all
kinds of standardized testing. These
online interactive courses provide a
cost-effective and time-saving alternative
for students with limited resources.

Barriers to Entry checklist


Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance

Level
Medium
Low
Growth
Low
Low
Light
Low
SOURCE: WWW.IBISWORLD.COM

and utilities, as well as the purchase of


some computer equipment and
software, the majority of industry costs
are related to wages. IBISWorld

WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the US July 2014

21

Competitive Landscape

Barriers to Entry
continued

estimates that spending on wages will


amount to 57.1% of industry revenue in
2014, up from 46.4% in 2009. As the
industry does not include online-only
tutoring, wage increases have stemmed

from operators need to hire more


specialized instructors to compete with
increasingly specialized online services
and to meet demand for more
personalized attention from customers.

Industry
Globalization

The Tutoring and Test Preparation


Franchises industry has a low level of
globalization. Some industry operators
have establishments in a number of other
countries. One of the major players in the
industry, Kumon, is based in Japan and

has locations in countries across the


world. However, due to the personalized
service nature of the industry and the
differences in standardized testing
among countries, the majority of industry
firms are based in the United States.

Level & Trend


 lobalization
G

in this
industry is L owand
the trend is S
 teady

Tutoring & Test Preparation Franchises in the USJuly 2014 22

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Major Companies
Kumon North America Inc. | Other Companies

Major players
(Market share)

91.3%
Other

Kumon North America Inc. 8.7%

Player Performance
Kumon North
America Inc.
Market share: 8.7%

SOURCE: WWW.IBISWORLD.COM

Founded in 1958 in Japan, Kumon


predominantly provides tutoring for
mathematics and reading, operating
across more than 48 countries across the
world. As of 2013, more than 4.0 million
students have been enrolled in Kumon
courses globally. Kumon has been
operating in North America for more
than three decades; the first Kumon
center was opened in New York City in
1974. In 2013, Kumon is estimated to
have enrolled 340,000 students in more
than 2,000 individually owned and
operated centers in North America alone.
The majority of Kumon centers are
individually owned and operated through
a franchise system. Of the centers located
in the United States, only 27 are not
operated as franchises. Franchisee
instructors are certified to teach the
Kumon method after undertaking a
company-training course. Franchising

agreements span a period of five years


and are renewable at the end of the term.
Kumon has been named the leading
franchise in the afterschool education
industry by Entrepreneur magazine for
over a decade.
Financial performance
During the five years to 2014, Kumons
industry-relevant revenue is expected to
grow at an average annual rate of 1.7%
to $75.0 million, making the company
the largest franchiser in the United
States. Despite the industrys struggles,
company revenue is forecast to increase
in five consecutive years to 2014. Kumon
has benefited from its strong brand
recognition for quality and results.
Coupled with the increasingly
competitive environment for college
admission, with many parents willing to
pay for tutoring to give their children an

Kumon North America Inc. (US industry-relevant segment) financial


performance*
Year

Revenue
($ million)

(% change)

Operating Income
($ million)

(% change)

2009

69.0

N/C

7.0

N/C

2010

70.0

1.4

7.5

7.1

2011

72.0

2.9

7.6

1.3

2012

73.0

1.4

9.3

22.4

2013

75.0

2.7

9.5

2.2

2014

75.0

9.3

-2.1

*Estimates
SOURCE: ANNUAL REPORT AND IBISWORLD

Tutoring & Test Preparation Franchises in the USJuly 2014 23

WWW.IBISWORLD.COM

Major Companies

Player Performance
continued

advantage at a young age, the company


has seen its tutoring revenue for K-12
students rise consistently over the past
five years. Profitability has also

improved, growing at an annualized rate


of 5.8% during the five years to 2014,
with margins well exceeding the
industry average.

Other Companies

Educate Inc.

Huntington Learning Centers Inc.

Estimated market share: 4.5%


Educate Inc. provides tutoring and other
supplemental educational services to
children from K-12 schools and learning
centers. The companys Sylvan Learning
Center was founded in 1979 and provides
tutoring services at 585 centers in the
United States and over the internet.
Sylvan provides tutoring in reading,
writing, math and study skills, while also
offering test-prep services for college
entrance exams. Through its Catapult
Learning segment, Educate provides
tutoring and other supplemental
education services to students in public
and private schools through governmentfunded contracts. In 2014, the company
is estimated to generate about $38.7
million in industry-relevant revenue.

Estimated market share: 3.5%


Established in 1977, Huntington Mark
opened its first location in Oradell, NJ.
The company has been accredited by
the Middle States Association of
Colleges and Schools since 1996.
Huntington provides tutoring for
academic skills in reading, writing,
mathematics and vocabulary for
students of varying ages. The company
also provides specific subject tutoring
ranging from algebra to physics. Also,
Huntington provides exam preparation
courses for K-12 students, including
test preparation for SATs, ACTs, AP
courses and other preuniversity exams.
In 2014, the company is expected to
generate about $30.1 million in
industry-relevant revenue.

Tutoring & Test Preparation Franchises in the USJuly 2014 24

WWW.IBISWORLD.COM

Operating Conditions

Capital Intensity | Technology & Systems | Revenue Volatility


Regulation & Policy | Industry Assistance
Capital Intensity
Level
The level

of capital
intensity is L ow

The Tutoring and Test Preparation


Franchises industry has a low level of
capital intensity. For every $1.00 spent
on labor in 2014, industry operators will
invest an estimated $0.05 on capital
equipment. Capital investment in this
industry, as with other education related
industries, is largely limited to computer
software to compliment in-person
tutoring. In addition to facilitating
learning, computer software allows larger
operators to automate test delivery and
grading services, slightly reducing their
requirements for labor. Capital intensity
has, however, declined slightly over the
past five years. In 2009, for every $1.00
spent on labor, industry operators
invested an estimated $0.07 on capital
equipment. Capital investment declined

Capital intensity

Capital units per labor unit


0.5
0.4
0.3
0.2
0.1
0.0

Economy

Other Services Tutoring & Test


(except Public
Preparation
Administration) Franchises

Dotted line shows a high level of capital intensity


SOURCE: WWW.IBISWORLD.COM

partly due to establishments being able to


rent premises on an as-required basis;
particularly for those firms offering

Tools of the Trade: Growth Strategies for Success


Investment Economy

Recreation, Personal Services,


Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labor skills are key to
product differentiation.

Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.

Traditional Service Economy


Wholesale and Retail. Reliant
on labor rather than capital to
sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.

Capital Intensive

Labor Intensive

New Age Economy

Tutoring & Test


Preparation
Franchises
Business Coaching
Computer
Private Schools
Stores
Public Schools

Change in Share of the Economy

Old Economy
Agriculture and Manufacturing.
Traded goods can be produced
using cheap labor abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialize
in niche, high-value products.
SOURCE: WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the USJuly 2014 25

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Operating Conditions

Capital Intensity
continued

short-term courses. Furthermore, during


the recession establishments delayed
upgrading their capital equipment, in an
effort to cut operating expenses.
As with most industries in the
education sector, wages and salaries
account for a high proportion of industry
revenue. In 2014, wages are estimated to
account for 57.1% of industry revenue,
whereas depreciation is expected to
account for just 3.0% during the year.
While the capital intensity of firms varies
based on the type of services offered,
teaching is done on a face-to-face basis,
which is unlikely to change. Industry

operators must hire highly educated


employees with appropriate
accreditation to tutor students.
Additionally, employees that provide test
preparation services tend to be former
students that have already successfully
completed the test for which they are
teaching. While the development new
test preparation and tutoring services via
computer-based programs may
complement industry services, labor will
remain a critical component moving
forward. This is especially so because
online-only operators are excluded from
this industry.

Technology
& Systems

The Tutoring and Test Preparation


Franchises industry has a low level of
technological change. As the industry
does not include online-only tutoring
services, the nature of industry services
has remained labor intensive during the
past five years, and will continue to
remain so moving forward. The majority

of industry services involves a classroom


setting and does not require a high level
of technology beyond standard computer
equipment and software. Nonetheless,
industry operators are increasingly
utilizing computers and software that can
administer practice tests and provide
immediate feedback.

Despite the turbulence of the recession


and subsequent recovery, the Tutoring
and Test Preparation Franchises
industry has experienced a low level of
revenue volatility over the five years to
2014. During the period, revenue
declined as much as 1.4% in 2011 and is
expected to increase to a five-year high
of 1.3% in 2014. Fluctuations in
industry revenue largely follow trends
in per capita disposable income. Clients
are more likely to purchase tutoring
and test preparation services when
disposable income rises, as these
services are discretionary. The relative
stability of industry revenue growth is,

however, underpinned by the stability


of broad demographic trends; from year
to year, the number of student
enrollments at elementary, secondary
and higher education institutions is
relatively stable.
Changes in government policy and
funding introduce a moderate level of
variability and therefore risk for
industry operators. Changes in the level
of government funding of education
can affect the provision of noninstructional services. In years of
budget shortfall, schools and other
educational organizations will have
fewer resources to pay for educational

Level
The level

of
Technology
Change is L ow

Revenue Volatility
Level
The level

of
Volatility is L ow

Tutoring & Test Preparation Franchises in the USJuly 2014 26

WWW.IBISWORLD.COM

Operating Conditions

support services. Legislative changes


have also impacted demand for
academic testing services, as
demonstrated by the No Child Left
A higher level of revenue
volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilized
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.

Behind Act of 2001. Changes to this


legislation and other legislation
concerning education industries will
raise revenue volatility.

Volatility vs Growth
1000

Revenue volatility* (%)

Revenue Volatility
continued

Hazardous

Rollercoaster

100
10

Tutoring & Test


Preparation Franchises

1
0.1

Stagnant
30

10

Blue Chip
10

30

50

70

Five year annualized revenue growth (%)


* Axis is in logarithmic scale
SOURCE: WWW.IBISWORLD.COM

Regulation & Policy


Level & Trend
 he level of
T

Regulation is
Lightand the
trend is S
 teady

The Tutoring and Test Preparation


Franchises industry faces a low level of
regulation. In general, industry firms are
able to operate with considerable
independence and autonomy. Industry
operators are not required to participate
in accreditation programs, although
some do to establish and maintain a
good reputation. For example, Sylvan
Learning Center (owned by Educate
Inc.) was the first supplemental
education provider to earn accreditation
by the Commission on International and
Trans-Regional Accreditation (CITA).
Accredited schools must abide by
various rules and regulations, and so
accreditation certifies that they meet
standards of educational quality.

Under the No Child Left Behind


(NCLB) Act of 2001, the federal
government provides funding to school
districts to supply free afterschool
tutoring to low-income students
attending a failing school. Eligible
students can seek free tutoring from a
list of state-approved providers of
supplemental educational services
(SES). Approved tutoring operators
have a responsibility under the NCLB
legislation to provide course content
that is adequate to achieve certain
educational gains. They must also
report student progress to the local
educational agency and to parents.
Instruction must also be secular,
neutral and nonideological.

Tutoring & Test Preparation Franchises in the USJuly 2014 27

WWW.IBISWORLD.COM

Operating Conditions

Industry Assistance
Level & Trend
 he level of
T

Industry Assistance
is L owand the
trend is S
 teady

The Tutoring and Test Preparation


industry has a low level of industry
assistance. Tutoring and supplemental
education services providers can receive
federal funding under the No Child Left
Behind (NCLB) Act of 2001. The act
subsidizes afterschool tutoring at private
establishments for students from lowincome families who attend eligible
schools. This provision has boosted
demand for industry services considerably
by both promoting tutoring services and
funding them at a federal level. Some

industry operators generate a significant


portion of their revenue from these
programs. However, the future of NCLB is
uncertain, as funding for the program is
expected to fall moving forward.
A number of industry associations
provide assistance to industry operators.
For example, the Education Industry
Association (EIA) provides information,
professional development and advocacy
services for its members in this industry.
The EIA has over 800 corporate and
individual members.

Tutoring & Test Preparation Franchises in the USJuly 2014 28

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Key Statistics
Industry Data
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Revenue
($m)
721.6
772.0
867.3
858.8
849.4
856.3
844.5
842.8
850.3
861.0
879.9
901.1
917.1
934.4
953.6

Annual Change
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Revenue
(%)
7.0
12.3
-1.0
-1.1
0.8
-1.4
-0.2
0.9
1.3
2.2
2.4
1.8
1.9
2.1

Industry
Value Added
($m)
405.3
439.5
461.5
491.3
456.0
486.9
533.4
544.6
557.6
572.6
593.8
615.2
635.4
655.0
677.1

Establishments
1,881
2,017
2,395
2,509
2,531
2,663
2,745
2,813
2,882
2,967
3,053
3,156
3,253
3,355
3,449

Enterprises Employment
792
27,587
849
30,757
1,004
34,099
1,061
37,173
1,071
39,122
1,122
43,683
1,157
49,122
1,187
50,248
1,216
51,870
1,254
53,436
1,289
55,508
1,333
57,528
1,374
59,553
1,418
61,444
1,458
63,596

Exports
----------------

Industry
Value Added
(%)
8.4
5.0
6.5
-7.2
6.8
9.6
2.1
2.4
2.7
3.7
3.6
3.3
3.1
3.4

Establishments
(%)
7.2
18.7
4.8
0.9
5.2
3.1
2.5
2.5
2.9
2.9
3.4
3.1
3.1
2.8

Enterprises Employment
(%)
(%)
7.2
11.5
18.3
10.9
5.7
9.0
0.9
5.2
4.8
11.7
3.1
12.5
2.6
2.3
2.4
3.2
3.1
3.0
2.8
3.9
3.4
3.6
3.1
3.5
3.2
3.2
2.8
3.5

Exports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Key Ratios
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

IVA/Revenue
(%)
56.17
56.93
53.21
57.21
53.68
56.86
63.16
64.62
65.58
66.50
67.48
68.27
69.28
70.10
71.00

Figures are inflation-adjusted 2014 dollars.

Imports/
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Exports/
Revenue
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Revenue per
Employee
($000)
26.16
25.10
25.43
23.10
21.71
19.60
17.19
16.77
16.39
16.11
15.85
15.66
15.40
15.21
14.99

Imports
----------------

Wages
($m)
326.2
355.1
367.1
390.8
394.4
425.3
456.7
464.8
478.0
491.4
509.9
528.4
546.1
563.1
582.3

Domestic
Demand
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Per capita disposable income


($)
34,428
35,461
35,870
36,082
35,600
35,705
36,294
36,759
36,771
37,709
38,708
39,496
40,351
41,232
42,016

Imports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Wages
(%)
8.9
3.4
6.5
0.9
7.8
7.4
1.8
2.8
2.8
3.8
3.6
3.3
3.1
3.4

Domestic
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A

Per capita disposable income


(%)
3.0
1.2
0.6
-1.3
0.3
1.6
1.3
0.0
2.6
2.6
2.0
2.2
2.2
1.9

Wages/Revenue
(%)
45.21
46.00
42.33
45.51
46.43
49.67
54.08
55.15
56.22
57.07
57.95
58.64
59.55
60.26
61.06

Employees
per Est.
14.67
15.25
14.24
14.82
15.46
16.40
17.90
17.86
18.00
18.01
18.18
18.23
18.31
18.31
18.44

Average Wage
($)
11,824.41
11,545.34
10,765.71
10,513.01
10,081.28
9,736.05
9,297.26
9,250.12
9,215.35
9,196.05
9,186.06
9,185.09
9,169.98
9,164.44
9,156.24

Share of the
Economy
(%)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

SOURCE: WWW.IBISWORLD.COM

Tutoring & Test Preparation Franchises in the USJuly 2014 29

WWW.IBISWORLD.COM

Jargon & Glossary

Industry Jargon

FRANCHISINGThe practice of using another firms


business model and brand name for a fee.

SECONDARY SCHOOLAn educational institution


following primary education.

PRIMARY SCHOOLAn educational institution in which


children receive the first stage of compulsory education.

IBISWorld Glossary

BARRIERS TO ENTRYHigh barriers to entry mean that


new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITYCompares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labor. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity.
High capital intensity is more than $0.333 of capital to
$1 of labor; medium is $0.125 to $0.333 of capital to $1
of labor; low is less than $0.125 of capital for every $1 of
labor.
CONSTANT PRICESThe dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using the
US Bureau of Economic Analysis implicit GDP price
deflator.

INDUSTRY REVENUEThe total sales of industry goods


and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA)The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is
also described as the industrys contribution to GDP, or
profit plus wages and depreciation.
INTERNATIONAL TRADEThe level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%, medium is 5% to 20%, and high is more
than 20%. Imports/domestic demand: low is less than
5%, medium is 5% to 35%, and high is more than
35%.

EMPLOYMENTThe number of permanent, part-time,


temporary and seasonal employees, working proprietors,
partners, managers and executives within the industry.

LIFE CYCLEAll industries go through periods of growth,


maturity and decline. IBISWorld determines an
industrys life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industrys products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.

ENTERPRISEA division that is separately managed and


keeps management accounts. Each enterprise consists
of one or more establishments that are under common
ownership or control.

NONEMPLOYING ESTABLISHMENTBusinesses with


no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.

ESTABLISHMENTThe smallest type of accounting unit


within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.

PROFITIBISWorld uses earnings before interest and tax


(EBIT) as an indicator of a companys profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.

DOMESTIC DEMANDSpending on industry goods and


services within the United States, regardless of their
country of origin. It is derived by adding imports to
industry revenue, and then subtracting exports.

EXPORTSTotal value of industry goods and services sold


by US companies to customers abroad.
IMPORTSTotal value of industry goods and services
brought in from foreign countries to be sold in the
United States.
INDUSTRY CONCENTRATIONAn indicator of the
dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less
than 40%.

VOLATILITYThe level of volatility is determined by


averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
20%; high volatility is 10% to 20%; moderate
volatility is 3% to 10%; and low volatility is less than
3%.
WAGESThe gross total wages and salaries of all
employees in the industry. The cost of benefits is also
included in this figure.

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