discussion week 2

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Read "Snap Fitness Grows in a Weak Economy" on page 87.  Can you estimate the underlying calculations related to the break-even point given? What do you think is the optimal setup for a gym from a business standpoint as far as amenities offered, the way the gym bills its members and how much members use the gym? What is the optimal setup as a member?

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· View profile card for Andrew Richardson

 

Andrew Richardson

yesterday at 10:03 AM

I wish this problem gave a breakdown for Bally’s Total Fitness as well so there could be a comparison as to why it may have failed financially rather than show Snap’s data.

To start off, $120k for a franchise start off is not that bad if the building is included to be honest. I must also point out that breaking even with three months is kind of funny… I work as a business adviser so unless they are talking about breaking even for monthly fess, it would be incredibly impressive for any business to breakeven on their initial investment within the first year; outside of small operations that is.

So each new member starts up at $45 and then $35 for each month following. That puts Snap at having $9,625 per month in membership payments. Snap has to pay back $400 a month in royalty and then $137.50 in fees for their 275 members. That leaves $9,087.50 to pay employee cost, salaries, utilities, insurance, the startup loan payment, and many other additions as well…

 

Let’s say the $135,000 initial investment is a 5 year loan with no interest. That’s a fixed cost payment of $2,250 with $400 in royalties as well. Using fixed cost in total of $2,650

Variable cost is really $.50 per member to keep it basic. Crazy CM of 70.

This would put the breakeven at $3,785 but it does not account for all the other stuff I listed above. Using this figure I would assume that the rest of the expenses monthly come to $5,840 if the loan is to be paid off in 5 years with everything above being held constant.

I look at how Planet Fitness is doing and I see they continue to have room to grow. I know of at least 5 close friends that have a membership but do not go. Why don’t they cancel? Well, it’s like someone with a busy life who didn’t watch Netflix last week… does anyone really notice $5-$10 each month? I think this is part of the solution being quantity over quality. Sheer numbers of people at a smaller profit margin can get you to where you need to be, but many companies need to rely on larger sales at a higher profit margin and lower frequency due to the nature of their business. In the gym world, my guess if you want 100 people coming ever so often rather than 5 really buff dudes there 5 to 6 hours a day.

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