My phone has been ringing off the hook and my e-mail account has been full of messages from independent facilities (ranging from 10,00 square feet to 20,000 square feet and charging $35 per month to $49 per month). The calls go like this: “Things have slowed down this year for the second year. Sales just aren’t there like they used to be. I have more competitors than ever. The economy seems to be hurting my business. What do I do?”
Many clubs are nowhere near their 2005 sales targets. The economy is as slow as molasses in a Minnesota January. At this writing, consumer confidence is at a three-year low, according to the Rasmussen Consumer Index. Most fitness marketplaces are over saturated with clubs, most of them competing for the same bodies, and most of them competing in relatively the same narrow mid-price range.
Push has come to shove, which means independent operators must look at two things more than anything else: Can increase sales (particularly higher-margin sales such as personal training or weight management), and how and where can you cut expenses?
If you’re like most of the clubs that contact me, you can barely manage everything you have to do now much less take on anything else or increase ancillary sales when you’re having a hard time making basic sales. So you must control expenses, and one obvious place to look is group exercise.
Informal data from all my calls and e-mails show:
More than 80 percent of clubs report that their group exercise member-participants amount to less than one-tenth of their total membership.
More than 80 percent of clubs are losing money on their group ex program.
More than 80 percent of clubs have 30 or more group ex classes a week on their schedules.
More than 80 percent of clubs pay out $21 or more per instructor-class-hour in wages.
More than 90 percent of clubs report that the overwhelming majority of their childcare usage comes from group ex members.
Almost 100 percent of clubs do not break even on their child-care operation.
Based on some estimations, I concluded that:
-Average annual cost of a group exercise program = $37,760
Calculated at 30 (classes) times $21 (hourly wage not including payroll taxes) times 52 (weeks) plus $5,000 in miscellaneous expenses
-Average annual cost for a childcare program = $35,100
Calculated at 50 (hours per week open) times $9 (hourly wage including payroll taxes) times 1.5 ( number of childcare workers) times 52 (weeks).
-Average annual hard cost of a group exercise room = $48,000
Calculated at 1,500 (average square footage of group exercise room) times an estimated $32 (annual hard cost expense per square foot—no wages included).
-Average annual hard cost for a childcare room = $12,800
Calculated at 400 (average square feet of the childcare room) times an estimated $32 (annual hard cost expense per square foot – no wages included).
These numbers led me to conclude that the average annual cost of group exercise plus childcare is $133,660.
I also concluded that the average annual revenue of group exercise memberships plus childcare visit fees were $81,710. I calculated this number through these equations:
-Average annual revenue, group exercise members = $56,160
Calculated at 120 (average 1,500 members times 8 percent members using group exercise) times $468 (average membership dues of $39 per month times 12 months)
-Average annual revenue, childcare program = $25,550
Calculated at $2 (per child per visit) time 35 (average daily visits, including weekend reduced usage) time 365 (days).
The average annual net operating loss for group exercise alone was $29,600 ($85,760 minus $56,160), by my calculations, while the average annual net operating loss for child care alone was $22,350 ($47,900 minus $25,550). Therefore, the combined annual net operating loss from group exercise and childcare was $51,950.
These figures are true for most of the club operators with whom I have corresponded. It is likely that seven out of 10 club operators who bundle-price memberships (one fee pays for all uses of the club) are subsidizing group exercise members to the tune of almost $250 per year per member. (If that member also uses childcare, the subsidy-per-member increases to nearly $400 per year.)
Based on these assumptions, I concluded that most clubs cannot make money with group exercise bundled into a one-price-fits-all-use scheme. In addition, most fitness facilities are not only wasting precious space that could be used for profitable net-income-producing activities, but they also are wasting management and employee time on a program amenity that appeals to too few users per average club.
While some potential solutions such as pre-programmed group exercise licensing exist, most clubs do not have a sufficient management structure to implement these programs.
The message? You should evaluate your group exercise program to see if it is a money loser, and you should adopt a business attitude that caters to the majority of your member-users rather than a minority of specialty users.
We all like the energy created by the average group exercise program. But that program and the accompanying amenities that go with it can no longer be paid for by struggling clubs in a competitive marketplace. The old days are gone. New models of business operation need to come to the forefront in many facilities. Evaluating and quite possibly eliminating group exercise is one of those modern business paradigms that many club owners must consider.
Michael Scott Scudder is a personal business trainer who offers private workshops, sales, personal training and marketing systems, and telephone conferencing on pertinent fitness business matters. Michael offers to all readers a free download of his “Evaluating Your Group Exercise Program” system document. Michael can be reached at 505-751-4248 or by email at [email protected].