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How To Start An Escape Room Business

How To Start An Escape Room Business

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How To Start An Escape Room Business

How To Start An Escape Room

A fun activity to enjoy with family and friends, as well as a great team-building activity, escape rooms have become an incredibly popular form of entertainment over the last decade. 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. But how do you get started? This article will unlock the steps to get started and answer some common questions.

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Business Overview

Escape rooms are still relatively new, but this entertaining experience is quickly gaining 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 and riddles 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 can 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.

Industry Summary

Escape rooms, a realm where puzzle-solving meets real-life adventure, have surged in popularity since their introduction in the early 2010s. Even though the escape room industry is relatively young, it has blossomed over the last decade into a powerhouse of entertainment.

There are now over 1,900 escape room facilities in the United States alone. To understand the larger industry picture, consider that in 2014, only two dozen facilities were in business. While this marked an 8.5% dip compared to the figures from February 2021, the current trend suggests a resurgence after COVID closures, characterized by a fresh wave of market entrants.

Most of the escape room businesses in operation are operated as a standalone business, though some are located within venues like arcades and bowling alleys. In addition, many escape rooms are independently owned, but there are several companies with expansive networks, Escapology leads with 53 outlets, followed by Breakout Games and All in Adventures.

Target Market

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 To Start An Escape Room

Starting an escape room business requires more than just creating challenging puzzles. It calls for understanding your target market, registering the business, marketing, and more. Our guide provides an overview of the business, steps to get started, and answers some common questions to help you get started right.

Step 1: Research the Market

Before you start your escape room company, it is a good idea to check and see if there will be enough people interested in paying for what you plan to offer. While it doesn’t guarantee success, it allows you to understand your potential customer base, evaluate the level of interest in your business concept, and assess the competition.

Here are some ways to research whether there’s enough demand to start a new escape room:

Competitor analysis: Study your local market. How many other escape rooms are nearby? What themes don’t exist yet? This will help you understand their pricing, themes, customer base, and what makes them successful.

Surveys: Asking people in the community whether they would be interested in having an escape room in the community is a powerful way to get feedback. You can ask people directly or poll people on platforms like Facebook.

Social media: Platforms like Facebook, Yelp, Tripadvisor, and others can provide useful insights into consumer behavior and preferences. Look at the social media profiles of other escape rooms for ideas on what works well and what doesn’t.

Public data: Utilize public data from sources like the U.S. Census Bureau or local economic development office to learn more about the demographic trends in your area. Are you in an area that is growing or declining?

Step 2: Write a Business Plan

After verifying that there is interest in your escape room, the next step should be to write a business plan. A business plan can be thought of as a roadmap for your business and helps to organize your thoughts, strategies, and ideas into a structured document. In addition, the business plan is what a lender or investor will ask for to evaluate whether they will fund your project.

If the plan is going to be focused on funding, there are a few sections that I recommend spending some time on.

Market Analysis

In the market analysis section, you should highlight why your escape room business will succeed. This could include unique selling points, such as innovative themes, advanced technology integration, or a unique location. Lenders want to know that you understand the business and what sets your business apart from the other entertainment options that competitors offer.

Management Team

The management team section is often of great interest to lenders as the people behind the business can significantly influence its success. This section should detail the owners’ experience, skills, and qualifications, demonstrating their ability to manage and grow the business effectively.

Location

The location of your escape room is a key factor in its success. In this section, describe your proposed location and explain why it is ideal for your business. Factors to consider include foot traffic, accessibility, nearby attractions, and local demographics. Lenders will want to see that you’ve chosen a location that maximizes visibility and customer accessibility.

Financial Projections

Financial projections are a key part of your business plan. Lenders will examine this section closely to assess the potential profitability of your venture. Ensure that your projections are reasonable and based on solid market research. Highlight your revenue streams, expected costs, and projected profits.

Before presenting your business plan to a lender, it’s a good idea to have an experienced business owner or accountant review it. They can provide valuable feedback and help identify any potential weaknesses in your plan. This extra step can increase your chances of securing the funding you need to start your escape room business.

Related: How to write a business plan

Step 3: Source Funding

After the due diligence of market research and crafting a business plan, the next big hurdle is securing the funds to breathe life into your escape room business. While the exact amount needed will depend on various factors like location, size, and theme of the room, it’s important to explore different sources of funding to ensure you have the necessary capital to start and operate your business successfully.

Personal savings will be the first source of funding for most entrepreneurs. It’s the most straightforward way to finance a startup since it doesn’t require borrowing or giving up equity. However, personal savings may not be enough to cover all the startup costs of an escape room, especially given the high initial expenses for things like rent, construction, and props.

If outside funding is needed, here are some common sources for escape room businesses.

Lenders:

Traditional lenders such as banks are a common source of funding. Banks typically require borrowers to invest between 15% and 25% of their personal funds towards the total cost of the project, have a good credit score, and provide sufficient collateral. If the bank feels the loan is too risky, they might consider offering a loan with an SBA guarantee. This reduces the risk for the lender and can make it easier for the borrower to get approved.

Friends and Family:

Borrowing from friends and family is another option. This can be a great way to secure funding, especially if your friends and family believe in your business idea. However, treat these loans professionally and put all agreements in writing to avoid misunderstandings or strained relationships in the future.

Microloans:

Microloans are small loans, typically for amounts less than $50,000. They are often used by startups or businesses that need a small amount of funding. Some microloan programs also offer business training and funding, which can benefit new entrepreneurs. Organizations like Accion or Kiva provide microloans, in addition to local economic development agencies.

Local Investors:

Investors can also be a source of funding. These are typically local individuals interested in your industry or supporting local businesses. It’s important to note that securing investment can be challenging. Most investors are looking for businesses with high growth potential and scalability. They may also want a say in how the business is run, which is something to consider before seeking this type of funding.

Related: Finding the money to start a business

Step 4: Register the Business

Starting an escape room business involves several legal steps to ensure it is properly registered and compliant with local, state, and federal laws. Here are some key steps you should consider:

Business structure: The first step is to decide on a business structure. There are four main types: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). Each has its pros and cons.

  • Sole proprietorship is the simplest structure and involves the least cost. It’s ideal for individuals starting a small business. However, it doesn’t offer liability protection, meaning your personal assets could be at risk if the business runs into problems.
  • General partnerships are similar to sole proprietorships but involve two or more people. Like sole proprietorships, they offer no liability protection.
  • Corporations provide liability protection, separating your personal assets from those of the business. They are, however, more complex and costly to set up and maintain.
  • Limited Liability Companies (LLCs) combine the advantages of corporations and sole proprietorships/partnerships. They offer liability protection and are simpler to set up and maintain than corporations. An LLC is a popular choice due to its flexibility and protection.

Related: Comparison of business structures

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!

ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!

Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

Related: Tips and ideas for naming an escape room business

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain business licenses and permits: Depending on your location, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).

Related: What licenses do escape rooms need?

Step 5: Acquire & Set Up the Facility

Now that you have the money sorted and your business registered, it’s time to find the right place to set up your escape room facility. This stage involves acquiring the location, designing immersive escape rooms, and setting up a reliable booking system. Let’s break down these crucial steps.

The first order of business is to find the perfect location that aligns with your target market. Depending on your audience, this could be a bustling city center or a quieter suburban area.

I know it’s tempting to want to sign a contract and secure your location, but be sure to have the funding in hand before signing any contracts to acquire a property. The process of securing funding can often be delayed or even denied, so it’s not a good idea to commit to any property agreements until your financing is firmly in place. Additionally, before moving forward, verify that the property is correctly zoned for an escape room business to avoid potential legal issues down the line.

Once you’ve secured your property, it’s time to unleash your creativity. Designing your escape rooms is perhaps one of the most exciting parts of this venture. You’ll need to brainstorm themes, puzzles, and clues that will captivate your customers. Remember, variety is key. Provide different difficulty levels to cater to both beginners and seasoned escape room enthusiasts. Ensure the design is immersive and adheres to safety standards. Before committing to building out the rooms, local fire codes may impact the design for the safety of customers. So, before moving forward, connect with local officials to make sure your elements will pass.

Step 6: Hire Employees

As you gear up to open your escape room, you might find the need to hire employees to help run the operations smoothly. Common positions to hire include game masters who facilitate the experiences, customer service representatives who manage bookings and queries, and maintenance staff who ensure everything is in tip-top condition.

Before posting that “We’re hiring” sign, it’s necessary to be aware of employer requirements to stay on the right side of the law. Here is a brief rundown:

  • EIN: Start with obtaining an Employer Identification Number (EIN) from the IRS. This is necessary for tax purposes and to report information about your employees to various agencies.
  • Employment eligibility: Ensure your potential employees are legally allowed to work in the US, typically verified through documents like a passport or a combination of a driver’s license and social security card.
  • State reporting: Each state has its own laws regarding new hire reporting, wage reporting, and unemployment insurance taxes. Make sure you understand and comply with the reporting requirements in your state.
  • Workers’ compensation: Most states mandate employers to have workers’ compensation in place. It’s a type of insurance that provides wage replacement and medical benefits to employees injured in the course of employment.
  • Labor laws: Compliance with federal and state labor laws, which govern aspects like minimum wage, overtime, and workplace safety is important to understand.

In addition to these, prepare to set aside roughly 15% above the salaries to cater to payroll taxes, a significant yet often overlooked cost of hiring.

Related: Hiring your first employee

Step 7: Create a Marketing Plan

Even with the most creative of rooms, marketing is an essential part of making your escape room business successful, so a great marketing strategy will let potential customers know you are open.

There are several strategies you can use to market your escape room effectively.

One effective way to market your escape room is by utilizing social media. From spotlighting players, to teaser videos or behind-the-scenes looks into the intricacies of your puzzle can create a sense of community and make your customers feel special. Posting photos of your guests (with their permission) is a common practice in the escape room industry. It’s a fun way to engage with your audience and encourage them to share their experiences with their own networks.

A solid website with online booking capabilities is a must. A smooth booking process is vital to provide a seamless experience for your customers. Your system should allow customers to choose their preferred date and time slot, receive a confirmation email upon booking, and make secure online payments. There are numerous booking software options available, so choose one that suits your business needs and budget.

To get better visibility online, look at paid online advertising. You’ll also want to claim your business on relevant online business directories, including Google My Business, Yelp, and Trip Advisor. This can significantly improve your local SEO, making it easier for people to find your business when they search for escape rooms in your area. Include important information like your location, hours, contact information, and encourage customer reviews.

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.

Related: Low-cost ideas to market a new business

Step 8: Prepare to Open!

As the big day approaches to open your escape room business, there are a few significant steps left to ensure a smooth start. Every business will have different needs, but here are a few common loose ends that may need to be tied up:

Business insurance: This is crucial to protect your business against potential losses and liabilities. Look for an insurance policy that covers property damage, general liability, and workers’ compensation.

We recommend getting at least three insurance quotes, including local insurance agents and online providers like Coverwallet or Hiscox to get the best coverage and price.

Bookkeeping: Setting up a reliable bookkeeping system is essential for tracking income, expenses, and overall financial health. You can either handle this yourself using software like Wave Accounting (FREE) or Quickbooks or hire a professional accountant.

Contracts: Depending on your business model, you might need various contracts, such as waivers for participants. An attorney is best here, but RocketLawyer and Law Depot have free and inexpensive templates that may be helpful.

Bank account: Opening a separate bank account for your business can help keep your personal and business finances separate and make tax time easier.

Pricing: Your pricing strategy should cover your costs and align with what customers are willing to pay. Consider factors like local market rates, the complexity of your rooms, and any extras you offer.

Credit card processing: Accepting credit cards is expected in most businesses. Choose a reliable payment processor like  Square or Stripe that offers competitive rates and good customer service.

Industry associations: Joining industry associations like the International Association of Escape Games can provide valuable resources, networking opportunities, and credibility.

Grand opening: Plan a memorable grand opening event to generate buzz and attract your first customers. Consider offering special promotions or partnering with local businesses to increase attendance.

Greg’s Tip: Running an escape room involves more than just great rooms. Be prepared for the day-to-day operational challenges, including booking management, maintenance, and customer service. It might be beneficial to undertake a course in business management if you are new to running a business.

Greg's Business Tip

Common Questions When Starting An Escape Room

How much does it cost to start an escape room business?

Starting an escape room business can be a substantial investment, generally ranging from $50,000 to $300,000 on average. However, the exact amount can vary significantly based on several factors, including the location, the size of your escape room, the complexity of your themes and puzzles, and more.

Let’s break down the main cost components to give you a better understanding of where your money will be going:

Location and renovation: Leasing and renovation of a space is often one of the largest costs. Costs include initial deposits and any renovations to the facility. This can run $5,000 and up, depending on the extent of renovations needed.

Theme and set design: Developing a rich and immersive environment is key. For room buildout and puzzles, you’ll need to budget for designers, quality materials, and contractors. This can cost between $10,000 and $150,000 per room, largely dependent on complexity.

Technology: High-tech rooms that include sophisticated lighting and sound systems, as well as electronic puzzles, can enhance the experience but will also add to the costs. The technology setup can easily cost between $7,500 and $30,000.

Insurance: Initial insurance costs, including liability insurance, can range between $1,500 to $5,000 for the first year.

Marketing: Setting aside a marketing budget for your launch can help to build buzz and attract customers. Initially, you may want to budget around $2,000 to $5,000 for marketing activities like creating a website, SEO optimization, and launching a social media campaign.

Licenses and permits: Requirements vary by state and municipality. This may include business licenses, building permits, and inspections. Budget between $500 and $2,000.

Miscellaneous costs: These include setting up a booking system, furniture for the reception area, props, and costumes, which can range between $5,000 and $15,000.

After calculating all the setup costs, it’s recommended to have an operating buffer equivalent to three to six months of your estimated operating expenses to cover any unforeseen costs or lower-than-expected initial revenues.

In summary, while starting an escape room can be a significant investment, with careful planning and budgeting, it can also be a profitable and exciting business venture.

How profitable is an escape room business?

Determining the exact profit that an escape room business can make involves considering a variety of factors, including location, operational efficiency, and the quality of the experience offered.

Generally, the formula for calculating profit in this industry revolves around the number of rooms, the ticket price per person, and the number of bookings you can accommodate in a day.

Let’s consider an example where your escape room has 3 rooms, charges $25 per person, and can host up to 6 groups of 6 people each day. We will project that the escape room will operate with 2 groups from Monday to Thursday and then 6 groups during the weekend days (Friday to Sunday).

To outline a basic profit estimation, let’s assume each group contains 6 individuals, and each individual is charged $25 for the experience. This means that each group would generate $150. Now, during the weekdays, with 2 groups per day, we are looking at a daily revenue of $300. Multiply this by four for the total weekday revenue, we get $1,200.

During the weekends, the daily revenue shoots up to $900, considering 6 groups per day. For the three days of the weekend, the total comes to $2,700.

So, the weekly revenue amounts to $3,900.

From here, it’s important to subtract the weekly operational costs to find the net profit. Let’s say the weekly operational costs, including rent, utilities, and staff wages come to $2000.

Therefore, the weekly profit before tax would be: $3900 – $2,000 =
$1,900 or approximately $7,600 monthly.

While individual results will vary, this estimate demonstrates the potential for escape rooms to produce solid profits, especially after covering the initial start-up costs. Owners should run detailed financial projections to account for local prices and costs.

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?

Resources:
Association for Room Escapes of North America
International Association of Escape Games

How To Start An Escape Room Business

How To Start An Escape Room Business

Greg Bouhl

Greg Bouhl

Welcome! My name is Greg Bouhl, and I am a serial entrepreneur, educator, business advisor, and investor.

StartingYourBusiness.com is here because of the many clients I worked with who made decisions based on inaccurate and outdated information.

Starting a business is hard, but here you will find the practical tools, resources, and insider tips to help you successfully start a business.

If there is a question about starting a business or help finding a resource, I'm here to help!

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