Choosing the most profitable fitness franchise


Decoding the franchise disclosure documentation of any fitness franchise can be difficult. There are tons of elements to consider that are going to take money out of your pocket and put it into the pocket of the franchisor. It is important to understand which elements of the franchise disclosure document are going to affect the bottom line and which aren’t. Here are a few ways to make sure you are choosing a fitness franchise with the most profit potential.

Low licensing fee

low cost fitness franchise license feeThe initial licensing fees for fitness franchises vary from franchise to franchise. Some licensing fees are as little as $1,000 others can be as high as $25,000. When considering how to much to pay for licensing of a fitness franchise it may be important to look at the overall reputation of the gym. Doing your own investigation into the franchise is also well advised. If there is an option available for a similar business model but from a lesser known company it may be wise to consider it if it saves you $10,000 in licensing fees.

Licensing fees are not an indicator of the success of the franchise. Do not let anyone tell you otherwise. Some people think that by paying a high licensing fee that they are ensuring the success of their fitness franchise. This is not the case. Whether or not the franchise is successful the franchisor keeps the licensing fee. It is important to understand that the licensing fee is only purchasing the license to operate the business under the franchise name. Nothing more or less is being bought with that money.

Flat rate royalty fee

There are typically two types of royalty fees in the fitness industry; the flat rate royalty fee and the fixed percentage royalty fee. These both are fees that are charged monthly for operating priveledges. The difference is the cost.

If a club has 400 members at $40 dollars a month a royalty fee of 5% is going to be $800. Most fixed percentage royalty fees are closer to the 8%-10% range. The problem with the flexible rate is that successful clubs are punished for being successful. The club that initially had 400 members has doubled its membership and also doubled its royalty payment. Instead of paying $800 a month they are paying $1600.

Flat rate royalty fees are exactly what they sound like; flat rates. They stay constant no matter what the sales of the fitness franchise look like. This royalty payment structure is one that is more fair and typically favors the franchisee over the franchisor. Some of the most popular franchisors have flat rate royalty payments of as little as $450 a month, which is already saving the franchisee money over a fixed percentage royalty fee.

Equipment

A big fitness franchise that requires you purchase a lot of equipment is going to cost more than a fitness franchise that does not require a gym full of expensive machinery. The cost of equipping a gym can be a large portion of the costs associated with opening any fitness franchise. Choosing a fitness franchise that uses less equipment is going to be a great way to ensure that the more of your money stays in your pocket. Typically full scale gyms are the most equipped with the most ammeneties; they cost the most. Second are the 24 hour small gym formats. Personal training franchises and boot camp style franchises use a more reasonable amount of equipment. Dance Class franchises require almost NO equipment fees.

If you choose to franchise a full scale gym make sure that the franchisor provides you access to a corporate purchasing account type discount. They have the same equipment supplier in all of their stores and should be able to get you a discount on your equipment. If that does not work then you should try to negotiate with the supplier to see what type of discounts you qualify for.

Marketing

There are three areas in marketing that a franchisor is likely to charge a franchisee a monthly fee. Web hosting, advertising and lead generation. The costs associated with each of these are going to be different depending on the needs of the business.

Web hosting should not be a high fee. If a company is attempting to get a monthly fee from you for web hosting see if it is negotiable or if you can find your own web hosting service. Some franchisors want upwards of $300 per month to host the website for your business. If you were to host the website yourself there are companies that provide this service for as little as $9.99 a month. Each franchisor is going to be different, so web hosting may be one thing that you have to get in order to get lower franchising fees or royalties.

Advertising for a fitness franchise is generally a percentage of monthly sales. There are two methods that franchisors collect the advertising fee, either with them setting the percentage or with the franchisee setting the percentage to dedicate to advertising. The franchisors that let the franchisee dictate the percentage of sales to go toward marketing tend to favor the franchisee over themselves. Researching the standard for the specific business model may give you a better clue as to what is an acceptable percentage.

Lead generation fees are either collected with a flat fee or per generated lead. The flat fee is usually a winner in other areas of fee collection by the franchisor except in lead generation. Pay-per-click lead generation is new in the method of paying for leads but it favors the franchisee. When a franchisee is paying only for the leads that they actually get they can devote more of their money to other areas of marketing that may need it more.

Best combination wins

One franchise may be able to offer two out of three money saving aspects but be really high in the fourth. The best way to choose a more profitable fitness franchise is to take in the whole picture and average out all of the expenses. The one with the best overall picture is likely to be the most profitable.

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