fitness center business plan dionne

Running head: FITNESS CENTER BUSINESS PLAN 1

Fitness Center Business Plan

Tina Dionne

University of Redlands

BUSB 485

Brad Heath

February 27, 2014

FITNESS CENTER BUSINESS PLAN 2

Executive Summary

Small businesses serve as a driving force to past as well as present economies in the U.S.,

but these smaller entities are unfortunately becoming less common due to recent domination by

larger entities such as corporations, franchises and multinationals. In fact, eight out of ten new

businesses fail within the first 18 months (Forbes, 2014). But, “The American Dream”, the

aspiration that anyone can succeed is not impossible--especially when utilizing basic business

principles to mitigate risk and uncertainty.

The author will walk through generation of a Greenfield fitness business utilizing various

techniques acquired through the course of business study. The areas of Geographic Information

Systems (GIS), Strategic Management and Marketing provide a wide array of information which

is applicable to a fitness center start-up. GIS and location-based techniques can determine an

acceptable location after utilizing demographic and census information. Strategic Management

and Porter’s Five Forces Model can analyze how competitive factors affect the fitness industry.

A Marketing Plan including primary research of gym-goers as well as other potential clientele,

and secondary research of the fitness industry can reveal valuable facts about the industry. In

order for an entrepreneur to launch a fitness center start-up, several questions must be posed;

including: What does the fitness industry have to offer? Who are the potential customers of a

fitness center? Where should the fitness center be located? How much will the center charge for

membership? The author will deeply explore these questions and other pertinent issues in order

to come to sound conclusions and recommendations for the prospective business plan.


Senior Fitness Center General Description

The fitness industry is both growing and dynamic, where niche categories are ever

evolving to provide many new opportunities. One particular niche is within the aging population

demographic. A start-up fitness center designed specifically to cater and service older

individuals, with safety and social components as the two primary “must-haves” will fill in the

gap large health clubs have left open. Our goal is to grow a successful fitness locale with top-

notch service as the unique value driver which will in turn create a loyal customer following. Our

objective is to grow the business slowly in order to expand within ten years both through our

satisfied clientele and their subsequent referrals.

The prospective owner of this new fitness center not only possesses an Aerobics and

Fitness Association of America (AFAA) Group Fitness Certification, but over twelve years

experience in the fitness industry. Key skills and expertise are with formatting and instructing

Group Fitness classes; six years experience of Indoor Cycling, or sometimes referred to as

"Spinning" classes; and the past six years, experience with Aqua Aerobics. Routines have been

perfected over the years to provide challenging, fun and safe routines using popular music

tailored to the audience. After years of attending to and listening for what people want in their

fitness experience, it has been discovered that the over 50 age group desires a sense of

community along with opportunities to connect with each other. This is where a unique niche in

the fitness industry lies. The social component is highly relevant to retired people, and large

fitness clubs have not recognized that need--but the writer has and intends to provide a venue

where both fitness and “social hour” are addressed.


Business Philosophy

To deliver group fitness classes in a relaxed and social setting; to listen to clientele and

meet their needs; and to provide great service and meet all reasonable requests are the business

philosophies of this new brand of fitness studio. The facility will be marketed to seniors, (over 55

years of age); however, patrons will also be encouraged to bring in family and friends to work-out

alongside them. A multi-level group fitness approach will be offered in order to appeal to

different physical abilities and skill levels.

The fitness industry has begun to show signs of growth after the effects of the economic

downturn have diminished. The health club industry is once again healthy and poised to

accommodate further growth in the years to come. Seniors have a greater need to exercise in

order to stay healthy--more so than younger individuals--and the “baby boomer” generation will

provide a steady stream of clientele for many years, perhaps even decades. When considering the

growing fitness industry and a demographic group of this size, that combination ensures a market

exists for those attune to those facts.

The fitness center will operate as a sole-proprietorship. This form of ownership will better

facilitate a sense of control over the operation in order to nimbly respond to customer preferences

and requests.

Services

The small fitness studio will feature a unique, service-oriented venue. Age-appropriate

options will include group fitness classes such as Yoga and Strengthening, and pool work-outs

such as Aqua Aerobics twice daily and later feature the addition of Aqua Cycling dictated by the

demand of clientele. A lounge area with complimentary Wi-Fi will be offered in order to provide


clients the option to stay to catch up on emails and/or socialize once completing their exercise

routine. They will be welcomed and encouraged to linger for as long as they wish. Staff will

include certified fitness instructors and a nutrition consultant to assist clients with specific issues

such as weight loss, or muscle growth--needed for many over the age of 55. The strategy for the

fitness center will be both service and quality as differentiators and unique value drivers, which

will position the business to gain to competitive advantage over large and impersonal fitness

clubs in the area. Pricing structure will be in the moderate range, in-line with the competition and

will be discussed later.

Growth and Profitability of the Fitness Industry

“According to the International Health, Racquet & Sportsclub Association

(www.ihrsa.org), there are approximately 30,000 health clubs in the U.S. Combined, they have

approximately 40 million members” (Leisure Market Research Handbook, 2012). Membership

increased 71 percent between 1997 and 2007, peaking in 2006, when 42.7 million people were

members of U.S. clubs. Membership began declining in 2008, as the economy forced many

consumers to cut back. As of year-end 2011, membership had not returned to its peak level of

2006.

According to Fitness Centers Industry Profile, a November 2011 report by First Research

(www.firstresearch.com), the U.S. fitness centers industry includes about 22,000 companies and

nonprofits in the U.S. that operate about 30,000 fitness and recreation centers with combined

annual revenue of around $22 billion.

“The industry is highly fragmented; only a few dozen companies own more than 10

centers. The 50 largest companies, which include 24 Hour Fitness, Bally’s Total Fitness, Curves,

Gold’s Gym, LA Fitness. Life Time Fitness, Spectrum Club, and Town Sports International

http://www.firstresearch.com/

http://www.ihrsa.org/


(operator of the Sports Club brand) hold only about 30 percent of the market. Non-for profit

organizations, such as the YMCA, operate more than 5,000 of the 30,000 clubs”, constituting 6

percent of the market (LMRH, 2012).

Information about the fitness habits of metropolitan areas in California are important to

examine. For the year 2011, in San Diego, 24 percent of adults exercised 12 or more times a

year. In San Francisco, 31.7 percent; and Los Angeles, 27 percent of adults exercised 12 or more

times a year. (Miller, 2012) The percentage of Southern Californians that exercise is a moderate

number of the population which still leaves room for potential growth of the market.

According to Fitness and Recreational Sports Center NAICS Code data (see Figure One),

the amount of establishments in the U.S. have gone from 30,359 in 2010 and are projected to

reach 32,101 in 2014. Sales have gone from $20,345 million in 2010 and are projected to reach

22,838 in 2014. Employment in the industry has gone from 564,379 in 2010 and is projected to

reach 596,920 in 2014. Sales reflect approximately a 6 percent increase from 2013 to 2014. The

improvement in the economic situation is beginning to reflect the ability of Americans to spend

more on fitness than in recent years--good news for the industry.

Background of the Fitness Industry

The industry began in the late 1960s and early 1970s and was formed mainly by those

who wanted to incorporate their love for fitness into a career. Their overall lack of business

training proved to be detrimental for many of these trailblazers. “[M]any of these clubs were not

run like businesses with proven sales, marketing and accounting procedures, and they fell by the

wayside. These failures helped cause bankers to take a dim view of health clubs — a view that

holds true even today at some banks” (Carter, 2007). Fortunately, the next wave of entrepreneurs

learned from the misfortunes of past ventures. Sound business practices which include close


monitoring of financial data have been adopted and therefore spawned the healthy industry that

exists today.

According to statista.com, globally the fitness industry generates over 75 billion U.S.

dollars in revenue. In 2012, the U.S. market had an estimated size of 21.83 billion dollars, which

globally is the biggest market in the fitness industry.

The personal goals of health club members depend in some part on

their age. More than 90 percent of health club members that are at

least 66 years of age, for example, say that they train at a fitness

center because they “need to stay healthy”, only about 47 percent of

16-to-20-year-olds cite this reason. The price of membership is the

main reason why people either don’t join a health club at all (55.8

percent) or why they quit their membership (52.2 percent).

It is interesting to note that the “baby boomer” generation is mentioned in the above passage,

pointing to the fact the demographic group is important and should not be overlooked. Price

should also be carefully calculated so as not to deter potential clients or lose them down the road

due to monetary concerns.

Porter’s Five Forces

Threat of Entry

According to Porter’s Five Forces Model, the Threat of Entry is high when: customer

switching costs are low; capital requirements are low; incumbents do not possess: proprietary

technology, or established brand equity; and new entrants expect that incumbents will not or

cannot retaliate” (Rothaermel, p. 69). Customer switching costs are relatively low, depending on

which fitness center and type of membership chosen. Generally if a customer chooses to not sign


a long-term contract, they pay an initiation fee and first and last month’s dues, which is around

$150. For some individuals, $150 is quite a bit of money; however, switching may be

worthwhile if a competitor has more of what that individual wants. Capital requirements are not

low to begin a fitness center when considering the scale of large fitness chains; however, a small

studio can begin with much less capital. Proprietary technology is rarely an issue with fitness

clubs. Some particular exercise routines, such as the strengthening and toning class like “Les

Mills’ Body Pump” is licensed and proprietary; however, any entity can pay the Les Mills license

fees and send faculty for training to use the routine. Brand Equity varies from club to club, but

can be quite valuable at certain chains. On balance, the threat of entry is high within the fitness

industry.

Power of Suppliers

“The power of suppliers is high when: incumbent firms face significant switching costs

when changing suppliers; suppliers offer products that are undifferentiated; there are no readily

available substitutes for the products or services that the suppliers offer; suppliers can credibly

threaten to forward-integrate into the industry” (Rothaermel, p. 69). Suppliers include equipment

manufacturers, and human capital. Equipment makers include Life Fitness, Cybex, PreCor,

Proform, Hammer Strength, TufStuff, Sports Art Fitness, CrossFit, Keiser, Octane Fitness,

Schwinn, StairMaster, Expresso, Freemotion and Marpo. Many suppliers are available for fitness

centers to choose from. Supply in the form of human capital and skills levels range from low

levels of expertise and training including front desk check-in and maintenance/cleaning crews, to

moderate or high levels of expertise and training of membership salespeople, personal trainers,

group fitness instructors, and management. The supply of human capital is steady and does not

pose a real concern to fitness centers in that many choose to work in the industry because of the


perks and benefits associated with employment at a gym--no need to leave “the office” to get a

daily exercise routine accomplished. Analysis of the power of suppliers is therefore low.

Power of Buyers

“The power of buyers is high when: there are a few large buyers; each buyer purchases

large quantities relative to the size of a single seller; the industry’s products are standardized or

undifferentiated commodities; buyers face little or no switching costs; buyers can credibly

threaten to backward integrate into the industry” (Rothaermel, p. 69). Buyers for fitness centers

includes anyone over the age of 12 who desires to lose weight, stay fit, or generally become

healthier. The benefits of exercise have received a great deal of exposure within the past 20 to 30

years, therefore just about everyone these days comprehends the importance of making exercise a

part of a healthy lifestyle. Some of the population is able to self-motivate and adhere to an

exercise routine alone, but many join a gym for that extra boost investing in gym membership

provides. With such a large number of small buyers, it’s not surprising the industry has grown to

become the size we find today. The improving economy is only increasing the number of these

small buyers who are in the market to spend on a gym membership, which means the power of

buyers is low.

Threat of Substitutes

“The threat of substitutes is high when: the substitute offers an attractive price-

performance trade-off; the buyer’s cost of switching to the substitute is low” (Rothaermel, p. 69).

Substitutes for fitness centers include home equipment such as treadmills, weights, indoor cycles,

in-home or office personal training, walking or running outdoors--which in Southern California is

a year-round possibility. Tech gadgets are another possible substitute entering the scene in recent

years. According to Rob Waugh, who covered the 2014 Consumer Electronics Show in Las


Vegas; many new fitness gadgets made their debut (see Figure Two). The number of substitutes

for fitness center memberships is few, however growing since equipment can be purchased

outright in order to exercise at home, the mild climate provides an option to exercise outdoors,

and the emergence of fitness gadgets that link to Smartphone apps. Threat of substitutes is

moderate.

Rivalry Among Existing Competitors

“The rivalry among existing competitors is high when: there are many competitors in the

industry; the competitors are roughly of equal size; industry growth is slow, zero, or even

negative; exit barriers are high; and products and services are directs substitutes” (Rothaermel, p.

69). Many large competitors exist in the fitness industry today; the industry growth is predicted

for 6 percent this year, double the growth rate of the past two years of 3 percent--relatively slow

growth; exit barriers are moderate when considering initial capital investments lost to exit the

industry; direct substitutes, as mentioned earlier, are readily available. The competitive rivalry is

therefore high.

SWOT Analysis

Strengths

Large fitness centers’ strengths include: large variety of cardio equipment, free weights,

and weight machines; and convenient hours of operation and locations; as well as the variety of

amenities, such as deluxe locker rooms, saunas, etc. In the case of 24 hour fitness, hence the

origins of its name-sake; members at most of their clubs can exercise around the clock, making

convenience an advantage. Another strength is the number of locations and variety of fitness

offerings as well as more access to capital when needs arise.


Weaknesses

Weaknesses of large fitness centers include the impersonal experience due to the size of

facilities which foster a “disconnect” between club managers and members. For members that

need more accountability in order to adhere to fitness routines, large fitness clubs do not provide

motivation some members need. Conditions are unsanitary at times at large facilities due to the

number of clients and cleaning crews cannot keep up due to the rate of occupancy and usage.

Opportunities

A small fitness studio has many opportunities to perform better than the big chains. First,

a better ability to connect with their members and provide exactly what each member is looking

for. With fewer clients to service, a more personal and rewarding experience can be delivered by

responsive and effective management practices. Second, Brand development to a level of

“Brand Awareness” could be another exciting opportunity for a new studio. Third, when a

popular new trend is requested by members’, that trend could quickly become part of the

schedule; possibly within weeks of being requested, rather than the months or up to a year

necessary for a large club to respond. Fourth, one or more star instructor(s) added to the staff

could draw more clients into the studio without a large amount of capital. Staff with up-to-date

certifications and sound exercise science knowledge could provide a marketing selling-point to

potential new members. And last, is development of a unique and proprietary exercise routine

which could potentially be licensed out to instructors everywhere, perhaps even worldwide; to

generate a recurring source of revenue.


Threats

Threats to a small studio include less access to capital for repairs, expansion, or other

improvements when necessary. Staffing difficulties, such as unreliable or unavailable instructors;

space issues, such as necessary square footage per person for group exercise could result in

turning away customers after capacity is reached. Other potential threats include insufficient

parking spaces during peak hours, inconvenient hours or location, smaller locker rooms, lack of

personal trainers, public complaints via social media, or new competitors entering the scene--all

of these “what-if scenarios” should be taken into account.

Barriers to Entry

Capital

The largest barrier to enter the market for a fitness center is capital. The writer will

estimate as closely as possible how much necessary capital is required, beginning with the retail

space. According to Rob Bishop of Elevations Health Club, square footage needs for group

exercise depend upon the type of class. “As a point of reference, a 1,500 sq. ft. room, with

equipment, can accommodate 20-30 members”. He also stresses to err on the larger side,

especially if group fitness is the focus of the studio because if the business booms the room can

never be too large. According to http://www.officespace.com/Orange_County-CA, the cost for

renting a retail space in the 3,000 square foot range in Orange County can cost over $2.00 per

square foot per month which calculates to upwards of $6000. Most rentals require first and last

month’s rent as well as a security deposit. Costs to prepare the space include the cost for an

architect and remodeling of the space. These costs could amount to $40,000 or more depending

on permit costs, construction materials, etc. Liability insurance for all instructors averages around

$150 per month, per instructor which will calculate to close to $2000 for the year. Legal expenses

http://www.officespace.com/Orange_County-CA


to file a fictitious business name whether as a sole proprietor, corporation, LLC, etc. will easily

amount to a few thousand dollars. Special equipment, such as indoor cycling or “Spinning”

bikes, Pilate’s equipment, and at least one computer workstation, all combine to increase the

capital expenditures into the $100,000 range for a basic fitness studio.

If pursuing a retail space which would allow for construction of a pool, of course a much

larger space would be needed as would additional capital. Pool contractors typically charge

around $60,000 to install a backyard pool; an indoor pool may cost substantially more, say

$75,000. Insurance costs would also be higher with the increased dangers and risks of a pool on

the premises, likely another thousand dollars; $3000 for the year. A facility with one group

fitness room and a pool could amount to nearly $250,000 of necessary upfront capital.

Legal Barriers

Permits. Most cities require permits in order to approve construction projects within that

particular city. As a point of reference, the City of San Diego’s website lists important answers to

permitting issues. The city recommends using a contractor who is licensed by the State of

California. The recommendation for drawing-up plans for construction of a pool is to utilize an

architect or engineer again licensed by the state. The inspection process can be arranged by the

licensed contractor, however the project’s inspection process is still considered to be the

proprietor’s responsibility.

Zoning. The City of San Diego stated, “Zoning sets up, within a defined area, the types of

buildings and what they will be used for. For example, a residential area may be zoned R1-20000,

which means that the lots can contain one single-family home and the lots are a minimum of

20,000 square feet.” A business cannot be located in a residentially zoned area, nor can a


residence be located in a commercially zoned area. The fitness center’s location must be

carefully selected by working within the prospective city and ensuring the zoning is appropriate.

Key Success Factors of a Comparable Start-Up

S.J. Maughan (personal communication, January 24, 2014) opened a new fitness studio in

the city of Orange, California on January 1, 2013. The small enterprise is important to examine

because it is a comparable start-up business which can clarify what elements contributed to their

success to this point. CoreWorks is a small fitness studio which consists of two group fitness

rooms, one equipped for Pilate’s; conducts 40 group fitness classes per week, six to seven days

per week; employs 15 group fitness instructors and offers free Wi-Fi while on the premises. The

sole-proprietorship was created after many suggestions from clientele to open a fitness center,

since the loyal group was growing tired of driving all over Orange County. Demand for a

permanent central location thus planted a seed to initiate the unique fitness locale.

Approximately one year prior to the opening, the owner and her husband--a strategic

analyst by trade--began the process of location scouting. So many issues come into play when

creating a Greenfield company. Issues such as city permits, the number of parking spaces in strip

malls, and even hiring architects may be necessary. The city of Orange, as does many cities,

mandates the size of retail pads and parking availability with regard to other businesses in the

strip mall. For example, a large grocery store mandates dozens of parking spaces. The city also

mandated an architect be hired in designing the interior studio space before issuing building

permits and authorizing the go-ahead to CoreWorks.

Geographic Information Systems (GIS) was utilized to input their clients’ residential

location and placed the tentative fitness studio in a central location to ensure clients would not

have to travel beyond a 10 minute commute. GIS was also implemented to pinpoint the locations


of competitors in order to ensure the prospective venue was not in proximity and pose a threat to

either business.

The studio differentiates itself from the big gyms by providing a unique experience to its’

mostly women clientele. The level of service provided had drawn in not only former clients, but

also newcomers from referrals and promotions. The marketing efforts have utilized Yelp,

Community Guide Magazine, Shopping Cart posters, neighborhood flyers and emails. The

output of promotion via the foot traffic of neighboring businesses, Denny’s and Weight Watchers

proved to be a disappointment. New clients as a result of Denny’s restaurant is practically zero,

which was no surprise; however Weight Watchers clients only constitute about 5 percent of new

clientele for the fitness center. When collaborating with Weight Watchers management about a

strategic alliance, the discovery was made that Weight Watchers clientele has little interest in

exercising as a means of weight control. The clientele prefers to diet only--who knew? Perhaps a

better location would have been one in proximity to a health food store, where the foot traffic has

more of a grasp of the benefits of exercise and therefore has a “holistic” mindset.

CoreWorks has now been operating for over a year at the time of this writing and breaks

even on a monthly basis. Initial plans for a juice/smoothie bar have been halted for the time

being and there are no plans for expansion. Challenges for the fitness studio are mostly staffing

issues, namely group fitness instructors that do not rely on income as the primary bread-winner of

a household. This type of person does not emit the equivalent commitment level as a primary

bread-winner does--to directly quote her, “they can be flaky”. She explained some “Zumba”

instructors had the worst record for not showing up to teach their classes, followed by Yoga

instructors. Unfortunately the situation reflects poorly on the fitness studio and lost goodwill can

take awhile to recover, precious weeks or even months. Despite the staffing challenges, the


initial year of business is over and profitable months and years may soon be on the horizon now

that the learning curve for this entrepreneur is beginning to level off--and the business is

beginning to pay off (60 to 70 hour work-weeks didn’t hurt either). The author gained valuable

insight into what key elements keep a start-up afloat for the most difficult period in a business’

lifespan--that first year of business. CoreWorks is surviving due to Capital investment,

Marketing efforts, and of course, plenty of “Sweat-Equity”.

Trends

In order to address what the majority of people perceive to be a “must-have” in a gym,

consideration of the latest trends of the fitness industry is vital. According to the American

College of Sports Medicine (ACSM), the top ten fitness trends for 2014 are: High-Intensity

Interval Training (HIIT), which involves short bursts of activity followed by a short period of rest

or recovery; body weight training, for example push-ups and squats; educated and experienced

fitness professionals; strength training; exercise and weight loss, gyms that address dietary

changes along with exercise for better weight control; personal training; fitness programs for

older adults, age-appropriate fitness offerings; functional fitness, which uses strength training to

improve balance and ease of daily living; group personal training; and Yoga, Ashtanga and

Bikram Yoga are drawing people back to Yoga after popularity had been on the decline in recent

years. Other notable trends in the top 20 include, core training, circuit training, and Boot Camp.

A small fitness studio can quite easily address all of the top ten. Hiring only certified and

experienced group fitness instructors, trainers and a nutritionist for those seeking weight loss or

muscle growth advice, may draw in clientele in numbers if they know how to find you.


Marketing

A survey was compiled utilizing Survey Monkey in order to gather information about

preferences in the fitness industry (See Figures Three through Eleven in the Appendix).

Respondents were asked ten questions to better understand “gym-goer” behavior and

expectations. Questions asked began with whether or not respondent currently held a gym

membership; if they were unsatisfied with their membership, what the reason was; if they held a

membership and did not visit the gym more that once weekly, what was the reason; what

amenities and fitness classes were most important to them; how much they were willing to pay

for the membership; their gender, where they reside; and yearly household income. About 50

percent of the respondents currently held a membership, the amount they were willing to pay on

average remained below $40 a month, and the availability of Cardio equipment was most

important to all the respondents. Many of the respondents that held a membership were

unsatisfied with their membership; citing reasons such as unsanitary conditions, poor service, and

poor perception of management practices. The number one reason respondents did not visit their

gym was “motivation issue” and the second reason was “time issue”. When given options for

fitness classes, many respondents selected Yoga, “Zumba”, Aqua Aerobics and Aqua Cycling as

well as age-appropriate options for ages 55 and over.

Customers

Suitable customers are many and include any “fitness-minded” individual over the age of

adolescence. The target market for the fitness studio; however, are females within the age range

of 35-75, residing in North Orange County with a yearly income over $75,000 a year. The fitness

center will promote its services by offering a free trial class and also feature advertisements in

local community coupon magazines, Double Take Deals, Yelp, and the local newspaper(s).


Customers that refer new membership sign-ups will be entered in monthly drawings for personal

training visits or other comparable service. Strategic alliances will be formed with other

businesses in the same strip mall or in close proximity and will offer a 20 percent discount on

single classes or memberships if the trial results in immediate membership sign-up.

Competitor Prices

Many of the big fitness chains provide which include a variety of group fitness classes,

cardio and weight lifting equipment; amenities such as a pool, spa, and sauna; as well as

basketball and racquetball courts. Along with these amenities comes a higher pricing structure

than smaller “Mom and Pop” gyms. According to the LA Fitness website, LA Fitness offers

memberships online for a $99.00 initiation fee and $29.99 per month with no long term contract

required. Upon joining the first and last month, dues are collected in the amount of $158.98.

24 Hour Fitness offers the All-Club Sport memberships for initiation fees starting at zero

to $149.99, with monthly dues with auto-pay from $29.99 to $39.99. All-Club Super-Sport

memberships for initiation fees starting at zero to $199.99, with monthly dues with auto-pay from

$39.99 to $59.99. All-Club Ultra-Sport memberships for initiation fees starting at zero to

$149.99, with monthly dues with auto-pay from $49.99 to $69.99.

According to their website, http://www.coreworksoc.com, CoreWorks offers the

following pricing:

Single Class $ 15 Senior Fit Classes $10

Student $ 79 Unlimited Classes with Student ID

“Extreme” $ 89 Unlimited Classes 12 Month Contract w/ Auto pay

“Lean” $109 Unlimited Classes Month to Month

“Fit” $100 8 Class pack valid for 90 Days

http://www.coreworksoc.com/


Pricing for the competition is highly variable depending upon whether customers choose to sign a

contract and whether the customer is seeking an upscale gym experience.

Location and Geographic Information Systems (GIS)

In order to find the ideal vacant retail space, research into areas adjacent to health food

stores in North Orange County may be most suitable with the application of Geographic

Information Systems tools. The GIS process can be broken down in stages to simplify the steps.

During the first phase or planning stage of a (GIS), according to Geographic Information Systems

by James Pick, it is necessary to think about:

Can [the project] be accomplished technically within the

capabilities of the organization (i.e. can I do this myself?)....Is it

affordable?...The next sub steps are to determine staffing and

scheduling of the project. Scheduling needs to take into account

project difficulty, sub-tasks, availability of personnel, and the

critical steps necessary for project completion. Staffing is a

challenge for most organizations anticipating GIS projects (Pick,

2008, p. 174).

To address the above planning stage factors, the project will be outsourced to a contractor.

Although the project is fairly simple, outsourcing the Geographic Information System services to

another company is preferable due to expertise and cost effectiveness (See Figure 12 for GIS

hourly rates). Scheduling likely will not be a big issue, due to the small size of the project. If the

business grows enough to justify employment of a full-time IT position, then staffing would be

addressed at that point.


Possible Locations

Affluent communities in North Orange County, such as Anaheim Hills, Yorba Linda or

Brea are likely to contain acceptable target markets. Analysis continues with “information

gathering, discovery, visiting and hearing the users’ needs, developing the spatial system

requirements, prioritizing the requirements, and assembling a proposal for full design and

implementation” (Pick, p. 176).

The Market Research, or gathered information from Survey Monkey, is quite valuable to

the fitness center start-up. Recognizing and addressing the wants and needs identified in the

survey--rather than the desires of the owner of the facility-- is preferable. The responses work

towards planning appropriate strategy, but not a rigid strategy. “[A]ctual strategy…is often a

combination of its top-down strategic intentions (which typically are expressed in written

strategic plans) and bottom-up emergent strategy” (Rothaermel, p. 43). This method of applying

strategy is preferable to planning out every last detail in advance, only to discover later that costly

resources had been wasted on unpopular features or capabilities. The owner of CoreWorks

discovered this to be the case from experiencing the scenario first-hand.

Cost for Information Technology and Business Analyst Online

The cost of the GIS project and how it will be implemented should next be addressed. At

this point, Information Technology staff should either be hired or outsourced; but as stated

earlier, outsourcing is preferable in this instance. The cost for the data provided by Business

Analyst Online (BAO) should be considered (Figure 13). Data pricing starts at $4179 for basic

variables including demographics, banking and finance, census, consumer spending, employment

rates, income level, insurance and transportation. Standard, which includes three additional

variables, costs $7539 and Standard Plus includes more variables and costs $12,837. The Basic


level should provide enough information and is a good value at around $4000 for this point in the

start-up process.

Design

“In this phase, the complete design and full set of requirements are developed and created.

It includes designing the architecture of the application, physical hardware including networking,

design of the data model, design of the spatial application, identifying the best sources of digital

data, checking on digital standards, planning data conversions, detailing the tabular, graphical,

and spatial outputs, and outlining the spatial cartography” (Pick, p. 178). The company chosen to

outsource would again be called upon to perform this task. Once a perspective location is chosen,

a potential customer list (non-spatial) would be obtained from Mailchimp.com. Figure 14 in the

Appendix shows BAO’s two perspective sites and surrounding areas. Business Analyst Online’s

program can deliver the necessary components. A prospective customer list consists of the first

layer of a multilayer process. The second layer with spatial data, people within the 10 miles of the

location and higher income level, will go over that customer list. At that point a data flow

diagram and/or entity-relationship diagram can be constructed.

The prospective benefits and impacts of having more insight about the population of

women and income levels in the surrounding area of perspective new businesses are many.

Primarily, the number of women in adjacent areas is very important. Taking the Survey Monkey

responses into account, women demand the group fitness experience more than men. Women are

therefore the target customers, which necessitates the acquisition of specific knowledge of how

many potential customers are available. Next, we examine what BAO has found for a particular

demographic group of women in close proximity within the specified radii of 10 miles of

“Sprout’s Farmers Market” compared with the same demographic group in the city of Brea,


California and a prospective location (see Figure 15). Women in the area and their income levels

are shown in Figure 16 of the Appendix. In order for the fitness center to not only have enough

potential clients, but those over a certain income level which will have the ability to spend as well

makes it necessary to acquire income data. The income level is crucial because those with lower

income will not spend on a gym membership--what many consider a luxury item. The location

will need easy walk-in and wheelchair access for people who have mobility issues. Also,

proximity to parks is less desirable because of the climate in Southern California would provide

an acceptable substitute to a fitness center.

Forecasting

Financial Forecasting is necessary for any start-up business to undertake in order to

estimate incoming revenue for a certain time-period early in the business's life. In order to

determine how long initial capital investment must sustain the start-up, the estimate must be as

accurate as possible. Inaccuracy could result in repercussions such as failure to meet monthly

financial obligations, to a large losses and even total failure of the business. One forecast is the

“best case scenario, what is expected, and another is “worst case” low estimate that is absolutely

attainable.

Overhead per Month

The estimated overhead for the fitness center amounts to $10,550 Per Month. The

breakdown is for Rent at $6000; Insurance at $250; Utilities at $1000; Instructor Fees $25 an

Hour for three times a day, six days per week at $1800; Marketing fees at $500; and the Loan

Payment at $1000. In order to forecast, it is necessary to calculate the different amounts coming

into the business every month. The proposed prices for memberships are as follows:

Single Class $ 16


$ 99 Unlimited Classes 12 Month Contract w/ Auto pay

$120 Unlimited Classes Month to Month

$100 8 Class pack valid for 60 Days

The proposed pricing is then taken with the number of people attending classes. Depending upon

which membership option the participant selects, the number of classes that participant attends,

and average the income to a per day amount. Next, apply the per day figures to “Best Guess” and

“Worst Case” numbers of people attending classes. Table One shows these four different

scenarios.

Table One

More Frequent Usage

(Attends 24 Per Month)

Less Frequent Usage

(Attends 8 Per Month)

Worst Month

Best Month

$99 Month w/contract

Income Per Day $4.13

4.13 x 24=$99


12.38x10=$128.30

$120 Month to Month


5.00 x 24=$120


15.00x10=$150.00

Best Guess 24 Students/Day

$99 Total Income/Day

$128.30 Total Income/Day

$2,970

$3,849

Worst Case 10 Students/Day $120 Total Income/Day

$150.00 Total Income/Day $3,600

$4,500

Based on these calculations, adjustments to expenses will need to be reduced, prices need to be

raised, or the quantity of memberships sold must be increased in order to have a sustainable

business. It may take a combination of all three for the income to exceed the overhead.


Conclusion

Employment in the fitness industry improved year over year and sales of fitness

memberships are projected to increase 6 percent from 2013 to 2014, showing the effects of an

improving economy. The application of Porter’s Five Forces Model analysis finds that on balance

the attractiveness of the fitness industry is moderate, with some forces high and some forces low.

The significant barriers to entry in the fitness industry include capital expenditures and legal

barriers. Capital required begins at the $100,000 range for a basic fitness studio and up to

$250,000 for a basic studio with a pool. Zoning and permit issues must be addressed. After

examining a comparable start-up fitness business, factors contributing to success after one year

were attributable to capital, marketing and long work weeks for the proprietor. Top fitness trends

for 2014 include strength training, age-appropriate group fitness classes for over 55 year-old

individuals, and yoga. Survey Monkey results revealed some individuals with memberships at

large gyms are not satisfied with management practices and a desire for age-appropriate (over 55

years of age) group fitness class options. Competitor pricing ranges from $29.99 per month to

$110 per month depending whether or not the member signs a contract. Statistic.com found

personal goals of the older demographic of over 66 years of age and reason for choosing health

club memberships is the need to stay healthy. Statistic.com also found price to be the reason

people either don’t join a gym or quit their membership.

Geographic Information Systems is a valuable tool to discover preferable locations for a

new fitness studio because it can use current census and demographic data. Access to this data

provides the potential start-up with information of where potential clientele, or target market is

located.


Recommendations

The fitness industry is a healthy and promising industry for an entrepreneur to venture

into. Despite Porter’s Five Forces analysis of moderate attractiveness of the industry, large

chain fitness centers possess certain weaknesses. The impersonal experience due to the size of

facilities, create a “disconnect” between members and management. For members that need

more accountability in order to adhere to fitness routines, large fitness clubs do not provide

motivation some members need. Doors of opportunity are therefore opened for smaller and

more attentive fitness studios. First, a better ability to connect with their members and provide

exactly what each member is looking for. With fewer clients to service, a more personal and

rewarding experience can be delivered by responsive and effective management practices.

Second, Brand development to a level of “brand awareness” could be another exciting

opportunity for a new studio. Third, when a popular new trend is requested by members’, that

trend could quickly become part of the schedule; possibly within weeks of being requested,

rather than the months or years a large club would need to respond. Fourth, one or more star

instructor(s) added to the staff could draw more clients into the studio without a large amount of

capital. Staff with up-to-date certifications and sound exercise science knowledge could

provide a marketing selling-point to potential new members. And finally, is possible creation of

a unique and proprietary exercise routine which could be licensed out to instructors everywhere,

perhaps even worldwide; to generate a recurring source of revenue. Recall from earlier fitness

industry statistics, in 2012 the U.S. market had an estimated size of 21.83 billion dollars. Just a

fraction of the percentage of a market this size can certainly sustain a small fitness business.

The unique age-appropriate exercise options, professional and knowledgeable staff and

social components bring something new and exciting to the industry. Great service and quality


will differentiate the fitness center from the competition and give it an edge over the large and

impersonal fitness clubs. After weighing the areas covered in the business plan, the industry

shows promise in Southern California. The fitness center start-up business can be undertaken;

however, sales forecasting results point out a need for reevaluation of the business plan.

Reconsideration of the retail space, possible membership fee increases, and drastic reduction in

overhead may all be necessary to ensure the business can actually survive for the critical initial

18 months and beyond. The recommendation at this point is to proceed with the fitness center

after reexamining and adjusting the vital components, but with extreme caution--if at all.


Appendix

Figure One

Fitness & Recreation Sports Centers (NAICS 71394)

Number of fitness industry establishments, sales and employment trends and their ratios for 2010 through 2014 (projected). Adapted from United States Fitness & Recreational Sports Centers Industry Capital & Expenses Report, 2013, 1-216.


Figure Two

Rob Waugh's Discoveries at the 2014 Consumer Electronics Show

GADGET WHAT IT DOES WHO IS IT GOOD FOR?MIO OPTICAL HEART RATE MONITOR

SKULPT AIM BODY COMPOSITION MONITOR Measures fat percentage and muscle size Gym addicts building bigger gunsWannabe immortals

SPREE HEADBAND Cyclists, runners, Dire Straits frontmen

Measures heart rate via optical sensors in a wristband (it counts the beats by 'watching' the blood pass through your capillaries) and connects to smartphone

Fitness fiends who want to watch 'the burn' happen

FITSIGNAL ADVANCED MONITOR Tailored fitness 'coaching' to achieve 'anti-ageing' goals

TINKE FITNESS SENSOR Measures heart rate, respiratory rate, blood oxygen levels, as well as heart rate variability

People concerned about their health - it's more medical than most fitness gizmos

MUSE BRAIN SENSING HEADBANDMonitors neuron activity via seven EEG sensors, like a heartrate monitor, and displays the results on your smartphone

Anyone wanting to lower stress - without the hippy-dippy stuff

Monitors heart rate, movement and body temperature and transmits data to smartphone app.

Tech Fitness Gadgets from the 2014 Consumer Electronics Show. Tech gadgets can be considered an acceptable substitute for a gym membership. Adapted from “The shape of gyms to come,” by Rob Waugh, 2014, Mail on Sunday. p. 38.


Figure Three

Question One posed to survey participants.

Survey conducted utilizing “Survey Monkey” to generate and graph responses. 41 people initiated responses as shown.


Figure Four

Question Two posed to survey participants.

Survey conducted utilizing “Survey Monkey” to generate and graph responses of 32 inidividuals. . Two out of the eight responses from the “Other” response were due to cost.


Figure Five

Question 3 posed to survey participants.

Survey conducted utilizing “Survey Monkey” to generate and graph responses of 23 individuals. Two responses from the “Other” reason were unsanitary conditions.Figure Six



Survey conducted utilizing “Survey Monkey”. Question 4 specifically asked, “Please select your ‘must-haves’ at your ideal gym” and 41 responses were collected. Figure Seven



Survey conducted utilizing “Survey Monkey” to generate and graph responses of 34 individuals. The “Other” response was varied from the 6 responses of that category.Figure Eight



Survey question conducted utilizing “Survey Monkey” to generate and graph responses of 39 individuals in order to learn how much respondents would pay for gym membership.Figure Nine


Question7 posed to survey participants.

Survey question conducted utilizing “Survey Monkey” to learn 41 participants’ gender.

Figure Ten



Survey question conducted utilizing “Survey Monkey” to determine the age of the 42 respondents.

Figure 11


Final question posed to survey participants.

Survey question conducted utilizing “Survey Monkey” to determine income level. In order to protect the respondents’ privacy, a “Prefer not to answer” option was given, of which 26% of respondents selected.


Figure Twelve

Consultant Rates for Geographic Information Systems.

A cost-efficient method of employment of GIS experts retrieved on February 11, 2014 from Odesk.com.

Figure 13


Business Analyst Online

BAO is a Geographic Information System tool which can be customized with add-ins that enable more or less features depending upon allocated budget.


Figure 14

Two points have been plotted with surrounding radii of 1, 3, and 5 miles.

The plot on the left is in the city of Brea, California adjacent to “Sprout’s Farmer’s Market”. The plot to the right is in the city of Yorba Linda, California at the corner of Yorba Linda and Fairmont Boulevards.


Figure 15

Demographic Information of the plotted points of Figure 14.

2010 Census Information of White Females ages 30 through 54 within one mile radius of the two previously plotted locations, the left graph “New Gym” refers to the Yorba Linda plot. The middle graph is within one mile radius of “Sprouts Farmers Market”, and the right graph is total white females in the city of Brea.


Figure 16

Demographic Information of the plotted points of Figure 15.

2012 Census Information of Per Capita Income (orange bar), Median Household Income (green bar), and Average Household Income (blue bar) within one mile radius of the two previously plotted locations; the left graph “New Gym” refers to the Yorba Linda plot. The middle graph is within one mile radius of “Sprouts Farmers Market”, and the right graph is the whole city of Brea.

References


35: FITNESS & HEALTH CLUBS. (2012). Leisure Market Research Handbook (pp. 144-146).

Richard K. Miller & Associates.

Fitness & Recreational Sports Centers Industry (NAICS 71394). (2013). United States Fitness &

Recreational Sports Centers Industry Capital & Expenses Report, 1-216.

Carter, B. (2007, May). To succeed, clubs must play the numbers game. Club Industry.

Retrieved from http://clubindustry.com/mag/succeed-clubs-must-play-numbers-game

Cipolla, K. (2013, November). ACSM's top fitness trends for 2014. Club Industry.

Retrieved from http://clubindustry.com/studies/acsms-top-fitness-trends-2014#slide-10-

field_images-22601

Esri Business Analyst Online 2012 [Online Software]. Redlands, CA: Esri.

Foley, K. (2010, September). Group exercise space. E-Journal of International Health,

Racquet & Sportsclub Association. Retrieved from http://www.ihrsa.org

Pick, J. B. (2008). GEO-BUSINESS: GIS in the Digital Organization. Hoboken, NJ:

JohnWiley & Sons, Inc.

Rothaermel, F. T. (2013). External Analysis: Industry Structure, Competitive Forces, and

Strategic Groups. In Strategic Management Concept and Cases (pp. 55-83). New York,

NY: McGraw Hill.

Construction permit tips for homeowners. (2014, February). Retrieved from San Diego,

Development Services Department website https://www.sandiego.gov/development-

services/homeownr/hometips.shtml

References

http://clubindustry.com/studies/acsms-top-fitness-trends-2014#slide-10-%20field_images-22601

http://clubindustry.com/studies/acsms-top-fitness-trends-2014#slide-10-%20field_images-22601

http://clubindustry.com/mag/succeed-clubs-must-play-numbers-game


Wagner, E. T. (2013, September). Five reasons 8 out of 10 businesses fail. Forbes. Retrieved

from http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-

businesses-fail/

Waugh, R. (2014, January 19). The shape of gyms to come. Mail on Sunday. p. 38.

http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/

http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/

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