IMAGE BY SHUTTERSTOCK
Operating a gym is expensive. In addition to payroll, operators must account for fixed expenses such as rent or mortgage payments and insurance coverage, plus variable expenses such as electricity and marketing costs.
As a result, it’s vital clubs maximize their profit per square foot to ensure their businesses remain not just profitable, but grow year over year.
Leisure Sports, which owns and operates a number of high-end fitness resorts and hotels in California and Oregon, evaluates square footage utilization and profitability in two ways.
According to Ralph Rajs, the senior vice president of Leisure Sports, first they look at individual programs that have dedicated square footage, such as tennis courts.
“In the case of tennis, since we don’t charge court fees, we track the quantity of the members at a given time and the trend of the dues average for that membership,” said Rajs. “If the number of members and the dues average are moving up, that’s the best-case scenario, and we leave it as-is. In our case, though, we have seen relatively flat annual increases in the quantity of members and flat dues, so we are working through the process of looking at a better use for the space. Unfortunately, this type of a move carries significant capital cost, so accurately forecasting the profitability of the new opportunity is key.”
The second strategy Leisure Sports uses is looking at the profitability of programs that occupy flexible square footage, like a fee-based group training class. “When we look at the programs that utilize a flexible space, the criteria become much simpler,” explained Rajs. “For example, can a new program drive better participation and income than what is currently using the space? The discipline on this is having a determined time horizon for evaluation of target numbers, and having a pipeline of vetted ideas that are ready to insert.”
According to Rajs, an example of a program at Leisure Sports that fits its profitability criteria is REV32, an eight-week weight loss program that focuses on helping members who need more direction with their weight loss goals. “This program has gotten higher priority for space above other programs because it has a proven track record, commands a good upfront cost and above-average margins,” he said. “When we started this program four years ago, the instructors had to flex their class into unused space.”
Another expense affecting a club’s profitability per square foot is equipment. According to IHRSA’s 2015 Equipment Survey, respondents “spent an average of $84,172 on new fitness equipment. Specifically, fitness-only clubs spent an average of $92,000, while multipurpose clubs spent $88,000.”
In the past, club operators had to go on gut feeling to determine if their equipment investments were paying off.
According to Mike Feeney, the executive vice president of New Evolution Ventures (NeV), those days are long gone. “Now, with companies like ECOFIT and Gymtrack, you can actually get real data that shows exactly what you should be focusing on from an equipment standpoint,” he said.
This data includes insights on which pieces of equipment are favored by members and which are underutilized. During a time in the industry where open space for programs like small group and functional training is considered an asset, this knowledge is invaluable.
“At the end of the day, everybody is looking to open more space for small group training, personal training or turf areas and they’re trying to make better purchasing decisions with every piece of equipment that goes into the club,” explained Feeney. “[Using data], you may find you can eliminate 10 pieces of selectorized equipment because they’re redundant and you don’t need them. I think that’s the best tool we have now, because it’s true hard data — not a gut feeling.”
Although it requires space, Feeney said small group training is currently providing the biggest bang for the buck at NeV’s facilities, which include brands such as UFC GYM and Crunch. But, this is only the case if the program is executed correctly.
“If you don’t have a pre-set program for small group training, it’s very tough to control the quality, get traction and monetize it,” explained Feeney. “Just putting a rack in and expecting it to work won’t cut it. You have to build programming around it.”
In addition to small group training, another trend Feeney sees promise in for boosting a club’s profitability is recovery. “We think that’s the next step with people to complement their workouts or be able to workout more, is true recovery,” he said. “It’s definitely an added revenue stream as well.”
For Rajs, no matter what product, program or amenity you’re thinking of investing in, the key is to consider the dues implication. “Will that ‘thing’ help to keep members by adding to the value proposition, or will it help to attract new members?” he asked. “There are so many good ideas out there — it’s easy to get sidetracked. We have found you have to have a very disciplined process because any new thing comes with its own set of work. We want to make sure there is going to be enough strategic benefit for the new effort to launch, whatever it might be.”
Feeney echoed this sentiment, adding club operators wishing to maximize their profits per square foot must be strategic in what programs they invest in, the equipment they buy and how they allocate space.
“I think the biggest mistake all of us make is we try to be everything to everyone,” added Feeney. “You’re the jack of all trades and the master of none. I’d rather be really good in what our brands stand for.”