Opinion: Why Your Gym Owner Is Probably Struggling
In micro-gyms, math is never as simple as rent + utilities divided by membership price to determine how many members are needed to break even.
But, we’ve all done it – members and owners alike.
“They must be rolling in it if all of us are paying $100 a month!”
“I only need 36 members to break even!”
For one, there are many other expenses to factor in that are always forgotten – mostly because the gym owner considers their work as sweat equity instead of a job that should be paid, and members won’t see all of the expenses it takes to run the gym.
And for two, every member that steps in the door costs something. There is no magic number where members come in and are 100% profit.
Let’s review all the expenses every gym owner should expect to have. Here is a real example of a gym we work with at Active Life. They’re in an area with an annual Median Household Income of $78,940.
|Expense Type||Monthly Cost|
|Rent + Care & Maintenance Fees||$3113|
|Equipment and Facility Repairs||$84|
|Supplies (cleaning, office, toiletries)||$94|
|Software (membership, email, music, payroll, etc.)||$422|
|Bookkeeping and accounting||$338|
|Mentorship and education||$763|
|Admin and operations salary||$1200|
|Credit Card Processing Fees||$332|
|Coaching Classes ($15/class), incl. Payroll taxes||$2501|
|Programming for group/kids/specialty||$600|
*Above is not including paying coaches for Personal Training or Individual Programming. We immediately recommended the admin and programming pay shown above and also advised this owner that $15/class will not begin to support the needs of a career coach. All other expenses were what the gym owner came to us with.
When they came to work with us, the gym’s average member was paying $91 per month, even though their current rate was $115.
With 115 members, that brings in $10,465 monthly.
$10,465 in revenue – $10,401 in expenses = $64 profit, and the owner does not have a salary.
This means the owner is paid $64 per month to own and operate this gym.
Remember, the median household income in this area is $6,578 monthly. Even if the owner coached 100% of the classes, which would be ill-advised and unsustainable, they wouldn’t come close to this. Allotting a $4000 salary, well under the median for this area, will cover the minimum they need to rent (not own) a place and pay bills.
Many owners you know are likely supported by another job or family income.
Also consider that the coaches are only paid $15 per class.
To limit classes to 12 people per coach with 80% occupancy, with the average member coming in 3 times per week, there needs to be 36 classes per week.
Paying their coaches $15 per class has their coaching expense at $2501 per month, including payroll tax.
But, it’s hard to find and retain quality, dedicated coaches at $15 per class. If we want professional coaches, we need to adjust. Coaches who are paid well between group classes and personal training are able to make a living off of coaching alone, increasing the time they can spend honing their craft.
Let’s raise the minimum to $20 per class with the most educated and hardest working coaches making $30 (an average of $25), bringing the average monthly expense to $3,870 + payroll tax = $4,168.
Now, before the owner is paid a salary but the coaches are paid a fairer wage, the business is losing money.
$10,465 in revenue – $12,068 in updated expenses = -$1,603 in losses monthly
Without raising rates, the owner will not be able to pay the coaches appropriately, nor take a salary for themselves, nor set aside money in savings to reinvest back in the business.
I think we can all agree that without support from another income, an owner could not continue to run the business without making money to cover their own personal expenses.
In order to break even (accounting for an owner salary of $4000 and paying their coaches better) they need to raise rates to $140.
This assumes everyone would stay – forever.
We don’t like to plan like that. Instead, we’d want to be able to run the business with 75 members and still be profitable. As a member, wouldn’t you want the business to continue even if 40 people had to cancel?
We should note, with 75 members, we’d only need 23 classes per week now, bringing our coaching cost down to $2,663.
With total expenses now at $10,563 + $4000 owner’s pay, rates would need to be $194 to break even with 75 members.
Gym owners need to raise rates by more than most people are comfortable with, and until they do it you’ll get less from the gym than you want.
The fact is gym owners are afraid to raise rates because people threaten them with cancels, but the reality is they cannot afford to stay open charging what they are. Let’s be honest: no one threatening to cancel would want to work for the wages the owner isn’t paying themselves.
What are the alternatives?
- They can pay their coaches the bare minimum, reducing the quality of the coaching in class. Working 25 classes per week (our max recommended floor time) would gross them $1,613 per month. That means all of the coaches would have other jobs that would be higher priority. This doesn’t mean that there aren’t good hobby coaches out there, but it does mean those coaches have less time to dedicate to continuing education, staff meetings, and retention tasks.
- They can pack more people in per class and reduce the amount of classes they offer. Save money on coaching expenses and reduce the quality of the classes.
- Stop investing in continuing education and mentorship. This leaves the gym and its staff stagnant. They will get left behind and the members will be less serviced because of it.
- Move facilities and pay less in rent. This will take time and money to do and will likely reduce the quality of the space, neighborhood and overall location amenities.
- The owner can continue to not pay himself. He will become resentful and burnt out. That resentment will carry through to the members and staff. The gym eventually will close.
Okay, none of those are viable alternatives. So what can be done?
- Rates need to be raised. It’s not a question. It’s do this or close. Yes, it is that serious. If the gym closes, everyone loses.
- With a rate adjustment, value MUST continue to be higher than the cost you charge. Make it so that members cannot find a service like yours at the cheaper gym down the street or anywhere nearby.
- Put effort into 1:1 training with clients – current and new. This will solve three problems: brings revenue into the business to cover expenses, gives coaches career opportunities, and most importantly – better helps the individuals that need it the most.