A health club’s P&L can tell an operator where the business stands, but the panelists in this month’s Thought Leaders discussion made clear the real value comes from understanding what’s happening behind the numbers.
Looking only at whether a line is over or under can miss the bigger story. Membership trends, labor productivity, long-term impact of spending decisions and more all provide context. The challenge is turning those numbers into decisions before a problem becomes too expensive to fix.
Memberships is one of the clearest places to start. Brad Houx, the VP of operations at Midtown Athletic Club, said he looks at membership counts and trends, the health of the dues line and secondary revenue. Secondary revenue offers another indication of how deeply members engage with the club, making it useful beyond its contribution to the top line.
Bill McBride, the CEO and co-founder of Active Wellness, also looks at similar metrics like lifetime value, retention and length of stay. He emphasized the importance of looking closely at the first 90 days of a membership rather than relying on a single annual attrition number.
The panel also emphasized revenue growth as a way to put the rest of the P&L into perspective. Craig Cote, the CEO of Mountainside Fitness, said year-over-year revenue trends can reveal issues that may be obscured elsewhere, particularly when new clubs are growing while existing locations are struggling.
Chris Craytor, the CEO of acac Fitness and Wellness, said he keeps occupancy costs below roughly 15 percent of revenue since a bad real estate deal can undermine an otherwise well-run business. He also reviews cash daily, noting that unlike net income, that’s what a business can actually spend.
The larger point is financial health isn’t captured by one metric. Operators need to understand profitability while also knowing how much revenue is changing and which expenses are producing value.
Labor received significant attention because it represents one of the largest controllable expenses for many clubs. The panelists cautioned against using payroll as a percentage of revenue as a standalone measure. A favorable percentage can still hide under-staffing, while a higher percentage may be justified if the labor is supporting demand and generating revenue.
McBride suggested looking at revenue per paid labor hour and labor cost per visit, along with department-level labor productivity as a way to understand what the club is receiving for the hours being scheduled.
Houx framed the issue around productivity and demand. A department being under budget doesn’t automatically mean labor is being managed well.
“If your personal training commissions are under budget because your revenue is under budget, that’s not good labor management,” said Houx. “The same principle works in reverse. If I’m adding hours to areas like housekeeping or front desk but demand, participation and utilization isn’t increasing, then I’ve actually created inefficiency as an operator.”
The scheduling process itself can also create unnecessary expenses. McBride described “payroll creep” as something that can happen when managers build schedules around employee availability instead of starting with what the club actually needs. His approach is to determine the staffing required to operate the business effectively and then fit employees into that structure.
Expenses require a similar level of attention. The panelists encouraged operators to question spending rather than applying an across-the-board percentage cut. Houx said he starts by asking why the club is spending the money and where the expense creates value. Expenses that exist just because “we’ve always done it” deserve another look.
Craytor pointed to a different idea on managing budget in raising prices on non-dues revenue like guest fees, locker fees and swim lessons, since dues typically get the most pricing scrutiny. About 35 percent of his company’s revenue comes from non-dues sources, making that pricing decision more consequential than it may appear. He also encouraged operators running multiple lines of business to hold each to its own profit margin.
Cuts also need to be evaluated beyond their immediate impact on the P&L. Reducing spending may improve results for a few months while creating problems later with retention, sales or member experience. Some examples from the panelists of where those cuts can cause issues include safety, frontline staffing and facility maintenance. They concluded that it’s important to observe the long-term impact of the cuts.
Craytor added that frontline payroll is typically the last thing he’ll remove. Before touching it, he looks first at pushing non-essential capital projects into the following year — a move that preserves cash without immediately affecting the income statement.
Programming presents another example of why financial data needs context. Group exercise may be an expense line, but its contribution can extend beyond direct revenue. McBride said his teams evaluate programming like group fitness quarterly, considering attendance relative to room capacity and the overall needs of the club.
For Houx, group fitness can also function as marketing. He noted the club’s group fitness schedule is one of the most visited areas of Midtown’s website, meaning it can influence whether a prospective member finds something relevant enough to become a lead.
Therefore, the answer to a struggling class may not always be eliminating it. Attendance could be affected by the time, instructor or way the program is promoted. Strong participation can also reveal unmet demand and create an opportunity to expand.
The same thinking applies to major capital investments. New equipment, technology and amenities can create excitement, but the panelists argued for a more disciplined process before committing capital.
Cote stressed the importance of calculating the all-in cost, including installation, programming and training. He recommended involving operational team members in building the business case because those employees will ultimately be responsible for implementing the investment.
McBride asks teams to put the business case in writing before moving forward. He explained the analysis should address the strategic reason for the investment, financial return, operational requirements and potential risks. The investment should then be reviewed again after 12 months to determine how closely reality matched the original assumptions.
Houx added another question operators should consider about opportunity cost. If the club doesn’t make the investment, what happens? A decision to delay spending can carry its own financial consequences aspects like aging equipment or declining member interest begins affecting the business.
Across the discussion, the common theme focused on building a habit of asking questions. The P&L provides the numbers, but operators still have to determine what those numbers are saying about the club and future growth.
For a business with so many moving parts, financial discipline means understanding what the club is paying for, the return and what could happen next. The strongest financial decisions may not always make the current month look better, but they give operators a clearer view of where the business is headed.
Watch the full conversation here.
