There’s a revolution happening in fitness.

Yes, it’s a revolution. In 2005, my sister Alex and I opened the very first ’boutique’ indoor cycling studio on the east coast of the United States.  Aside from Yoga, there were virtually zero dedicated fitness studios in our community or in the entire metro Boston area.   It took a few years, but that cycling studio became highly successful and was the core model for a cycling studio franchise that has opened over 100 studios.  Not only that, but within 5 miles of our location there are now no fewer than 25 boutique fitness studios: Cycling, Barre, Bootcamp, Rowing, Pilates, HIIT, Yoga, Dance, Hybrids…and more.

A 2017 Trend Report Study by the Association of Fitness Studios notes recent explosive growth in fitness studios over the past few years and notes

  • Niche classes are a key trend driving growth
  • Independent studios are exploding in numbers fitness professionals explore becoming entrepreneurs
  • Differentiation and diversification are key
  • Technology and metrics are improving and driving growth
  • Medical connections and medical benefits are a positive impact

My own observations as a studio owner, franchisor, and long time participant  are that boutique fitness studios are having a profound impact on the way people view health, wellness and in fact lifestyle.   These places are no longer “gyms” to workout at.  Great studios are true communities that provide physical, emotional, mental and even spiritual nourishment.  Because of this…..more and more people are participating and the business opportunities are exploding.

Imagine having a fun, profitable business that makes people healthy and happy.  Here we explore the business issues around this idea.  Read up and let’s connect!

Bill Pryor

The cost of starting a boutique fitness studio

finan 55What does it cost to start up a fitness studio? Of course this depends.   I’ve seen startups at $50,000 and I’ve seen startups at $1.5 million.  Since we define a boutique fitness studio as a 1500-3500 square foot space,  I would estimate the average startup cost across the U.S. to be $300,000 to $800,000.

You should have 2 questions.  1) What does that include? and 2) Why such a broad range / what factors impact cost.   Here’s your answers:

Startup Costs
For this discussion, startup costs are defined as dollars spent before you open the business.  For the majority of boutique fitness startup costs fall into 5 basic categories

  • Construction and Buildout
  • Furnishings and Equipment
  • Marketing
  • Admin and technology costs
  • Staffing
  • Working capital*

For the vast majority of startups, the largest cost by far is buildout and construction.  If you’ve ever built a house or renovated a kitchen you know how quickly costs mount with flooring, lighting, electrical, plumbing, framing, painting and everything else.  Related costs are design and permitting,  Whatever your final startup cost is…..construction is likely to be 60% to 80% of the total,

Furnishings and equipment are separate but include your sound or a/v systems, your point-of-sale equipment, lockers, front desk, bathroom fixtures, furniture and any fitness equipment your concept requires.biz plan

Marketing is the creation of your name, logo, brand, website, app, social media platforms, collateral material, and signage….but also the development of a Grand Opening strategy and your ongoing marketing strategy.

Admin and technology costs include your financial system, CRM, booking system, legal and accounting fees, professional services, permits, licenses, insurance, lease or security deposits and others.

Staffing costs are those costs incurred before the business opens.

*Working capital (to cover costs before business revenue does) is not technically “spent” before you open, but I still include it as a startup cost because it does need to exist and be set aside.  It would be included in your loan or financing need.

Factors impacting start up costs.
Construction
costs – First, how much space are you building out?  More space, more cost.  Second, how complex or luxurious is your space?  the more fancy, the more it costs.  Third, what part of the country are you in?  Coastal urban markets are the most expensive, suburbs and small towns less.

Furnishings and equipment:  the more ‘luxury’ oriented your vision is, the more expensive these costs.  They are also impacted by the overall size of the studio.  If you are franchising you often get better volume rates on equipment.

Marketing costs:  Are you franchising, or building a brand and marketing platform from scratch?  If you franchise, you have a franchise fee but save dramatically on the basics of building up a marketing approach.

Admin and Technology costs will not see huge variation from market to market other than lease deposits and other items tied to a local real estate marketing.

Staffing costs depend on how much you plan to do yourself versus how much you hire out.  This cost is also geographically dependent.

Working Capital is needed to cover expenses before business does.  Hopefully a conservative estimate of your year 1 cash flow will help guide this need.  The better you revenue in year one, the less your need for working capital.

One final factor impacting startup costs:  the competitive environment in your market.  The more boutique fitness in your area, the more the “bar is raised” on costs you will need to incur to keep pace with market expectations.

Boutique studio fitness growth

Stephens, an independent financial services and research company recently published a report called “The Rise of Boutique Studio Fitness Concepts”.  Authored by Bryan O’Rourke, President of the Fitness Industry Technology Council.  Here is an excerpt from his summary:

“…..Consumers are seeking community-based fitness concepts that provide an outstanding fitness experience in a convenient and effective way. The rapid expansion of these concepts, their business models, and the related attraction of interest from the pilates imginvestment community all underscore the sustainability and relevance of the boutique studio trend. This reinvention of fitness delivery not only creates tremendous opportunities for operators, it can do so for the canny investor too…..”

Boutique chains added new studios at a rate of 450 percent per year between piper jaffray image2010 and 2014, according to the fitness-focused investment firm Piper Jaffray. Piper Jaffray That makes them the fastest-growing part of the annual $22 billion U.S. health club industry, according to the investment bank.

Participation in boutiques doubled from 21 percent in 2013 to 42 percent in 2014, according to research from the International Health, Racquet and Sportsclub Association.

Private equity money has been pouring into boutique fitness businesses as the quality and variety of workouts expands and as a rapidly growing number of fitness enthusiasts sustain a rapidly growing wellness market.xponential fitness logo

In May of 2017, private equity firm TPG Growth,  known for investing in Uber Technologies Inc. and Airbnb Inc., took a stake in Club Pilates, the biggest chain of Pilates studios in the U.S., that now has close to 300 active studios.  More recently, TPG has partnered with the first and largest indoor cycling studio franchise company, CycleBar.  Founded in 2014,  CycleBar began franchising three years ago and now has over 110 open studios, and plans another 200 that are in the pipeline nationally.  Club Pilates and CycleBar are the first boutique chains forming the foundation of XPonential Fitness, more brands are imminent under the Xponential name.

 

Where franchisors add value

As outlined in a previous post, there are pluses and minuses to franchising — and of course some franchisors execute better than others.  As you consider the franchise option, here are some of the areas where I believe true value can be added.

Branding.  Brand, vibe, feeling, whatever you call it — it’s important.  Large consumer companies spend millions on brand development for one simple logoclubpilreason:  a good brand is critical to strong business results.  With a franchise, you access a name, a logo, a color scheme, a website design, an app, graphics, marketing content, collateral, and other brand assets that have (usually) been professionally developed.  Building these things from scratch is a major project.

Real Estate support.  Finding a good location at a good price is often the single largest challenge in opening a fitness studio.  Most franchisors have shred4152experience in this area and support systems to analyze and select spots.  Landlords often prefer name brand tenants with a known model.  Learning commercial real estate from scratch is a major project.

Construction Support.  Because most franchisors have multiple locations with similar floor plans, there is a history of getting permits and building out that streamlines the process.  Being your own general contractor is a major project.

Technology Support.  Your website, booking system, performance metrics, audio visual, mobile app, CRM, financial and other systems are usually integrated and provided with a franchise.  Selecting suppliers and getting them integrated is a major project.

IMG_0776Economies of scale / Cost savings.  The products and equipment you need for construction, startup and ongoing operations are typically less expensive because the franchisor has negotiated bulk discounts based on volume.  Independent startups do not get the same benefits.

Knowledge sharing.  Because franchisees have access to similar businesses in different markets, there are opportunities to learn from each others successes and challenges.   Best practices can be refined and shared through the franchise system

 

Equipment and leasing…the basics

If your boutique studio concept has a significant equipment need, you will likely consider equipment leasing as an option.  Here’s how it typically works:

  1. You shop around and find the equipment you want
  2. You negotiate a price with the supplier
  3. You shop for a lessor (you may or may not choose to use the lessor recommended by the supplier)shred415
  4. You negotiate terms with the lessor:  term, interest rate, downpayment, lease-end options
  5. You pay a few months upfront, and monthly payments
  6. At lease end you return the equipment or buy from the lessor.
  7. After returning the equipment or buying and selling, you start the cycle over again with brand new equipment.

When you lease along this model, you are in effect ‘financing’ the equipment by paying over time instead of purchasing with cash up front.  For much fitness equipment the useful life is only about 3 years, so 3 year leases are fairly common.  In this model you have brand new equipment every 3 years.  I consider a monthly lease payment as an ongoing operating cost of the business Spynergy Studio Curvethat allows you to have the best and latest for your visitors.

If you are willing to keep equipment more than 3 years, you can buy the (now-used) equipment at a significant discount, that is negotiated and known when you sign the lease.   Here’s an interesting math summary from a cycling studio that wants new bikes every 3 years.

Scenario A (buy):  Pay $50,000 up front for 25 bikes @ $2,000 apiece.  After 3 years, sell bikes for $400 each ($10,000).  Total net cost for 3 years:  $40,000

Scenario B (lease):  Pay $5,000 up front, pay $1,400 per month for 36 months.  Total payments equal $55,000.  Sell bikes for $400 apiece.  Total net cost for 3 years:  $45,000.

These are rough numbers that illustrate the total out of pocket cost.  Obviously in scenario B, you pay more, but you have access to all that capital during the 3 years to make other investments in the business.  In scenario A, all that cash is gone instantly.   Most studios lease for this reason….especially if the cash to buy the bikes had to be borrowed, or taken from an investment that was actively earning.  There are other factors that may impact this decision based on which type of equipment and facility you have…this is one fairly typical example.

Boutique fitness studio market growth

In 2016, the number of U.S. consumers attending fitness studios increased 15% on a base of 15.9 million (general health clubs declined 3%).  That’s amazing.

Each year IHRSA, a leading industry trade association, publishes its annual ihrsa logo“Health Club Consumer Report” tracking a variety of consumer trends in fitness . In the big picture,  aggregate fitness participation grew 3.6% in 2016, and has grown by 26% since 2009.  But here’s the part that really struck me:

“….Members….belong to multiple facilities across club segments. In 2016, 32.2 million Americans were members of a traditional commercial health club…a decline of 3% from 2015.   Another 18.2 million indicated they belonged to a studio, an improvement of 15%….”

3% decline for traditional health clubs but 15% increase for studios.  That is a huge increase in one year on a base of 18 million.

Screen Shot 2017-12-08 at 8.18.50 AM

Source: IHRSA 2017 Health Club Consumer Report

The IHRSA report is very broad and tends to focus more on consumers in traditional health clubs, but in recent years has begun to recognize and discuss niche and boutique fitness in a more direct way.  In another post, we list other interesting ‘nuggets’ from this report.

2017: 100 studios open!

CycleBar Logo 1Hard to believe but the small dedicated cycling studio we launched in 2005 is still cranking…..and the CycleBar franchise company we helped co-found now has over 100 cycling studios open!  CycleBar riders are enjoying classes from coast to coast.

Our path was interesting to say the least.  My sister and I had zero fitness business experience and at the ages of 45, and 50 we launched the first cycling studio on the east coast.  It because successful, solid and profitable within the first 2 years and proceeded to grow for the next 10.  With that track record in z9xDr9nhSgCwSmyiZyPKTg_thumb_6d7hand, we were approached by a franchise development company; we partnered with them, and together built a company that was ultimately acquired by a private equity group.  That company is working today to further enhance and expand.  Wow, our funky little studio idea paid off.   Over those years, we learned a lot — hopefully we can help others looking to make a mark in this business.

CycleBar riders are today riding in:

Wellesley, Mass. (Boston)

Detroit
studio lobby

Indianapolis

Minneapolis

Nashville

Louisville

Florida:  Orlando, Tampa, Sarasota, Miami, Ft. Lauderdale, Naples, Boca Raton, Miami

Ohio:  Cincinnati, Cleveland, Columbus

North Carolina:  Charlotte, Raleigh

South Carolina: Charleston, Hilton Head, Greensborough

California:  Los Gatos,  Culver City,  Berkeley, Novato,
Laguna Hills,  Fresno

New Jersey:  Fort Lee, Wyckoff, Hoboken, Closter

Atlanta, Phoenix, New Orleans, Memphis, Fargo, Seattle, Boise, Dallas, Houston, San Antonio, Lubbock, Madison….and many more

Full list visible at www.cyclebar.com

 

Status Report: CycleBar Franchises…..Off the Charts!

CycleBar, the first indoor cycling studio franchise company was formed in April of 2014.  Principal owners of the new entity are a combination of experienced indCycleBar Logo 1oor cycling studio operators and experienced franchise system developers.  When we crafted our original business plan in mid 2014, we projected a reasonably conservative number of franchise commitments beginning in early 2015.  Boy were we wrong.  Local demand for this concept has blown our expectations out of the water.  As of March of 2017:

  • 157 franchisees have committed to 285 locations in 32 states
  • 74 Studios are open as of Q1 2017, 100 expected by June
  • New franchisees are committing  at a rate of 5 per week

Franchisees are local owners committed to building community businesses in markets they are familiar with.  The essence of the franchising model is to provide professional branding, marketing, technology and best practices to local ownership.  That frees owners to focus on community building, customer service and creating the best experience for riders.  If you are interested in joining us on this wild ride, let’s schedule a chat.

Spynergy Consulting has operated cycling studios for 12 years and has worked closely with over 80 individual cycling studio startup projects. We have recently formed a new company called CycleBar: the first indoor cycling studio franchise. CycleBar will provide a turnkey cycling studio solution from top to bottom.

Learn More / Get Complete Details
Click Here to fill out our candidate questionnaire and you will receive a call where you will learn full details on startup costs, franchise fees, financial history of existing studios, operations, branding, marketing and more.

6 reasons to launch your own boutique fitness studio studio

If you are evaluating the prospect of owning a fitness studio, here are a few of the things I found attractive about this kind of business.

1) People become passionate about your place and in many, many cases you are making a real difference in their mental and physical health.

studio lobby2)  For most studios,  your hours are limited to the times there are classes, it is not a business where you need to be physically present for long consecutive stretches (like retail or restaurants)

3) The business model is a good one…..Financially, if you can reach a certain attendance level — extra revenue after that has low incremental cost associated with it.  Staffing wise, it is a simple model, cash flow is good because money is pre-paid by customers so  there are not significant receivables.

4) Your clientele becomes a close community.  Because of your business, they interact with you and with eachother in a wide variety of ways.

5) Virtually 100% of your customers pre-pay for services, and most of that payment comes online.  Thus, no worries about cash in the studio, and no billing or accounts receivable issues.  These models are great for cash flow.

6) Decisions you make every day directly impact the  success of your studio

CycleGiving is part of the CycleBar DNA

The Wellesley, MA CycleBar has been in business for 12 years….and has tried a variety of ways to draw new riders into the studio:  Advertising, direct mail, telemarketing, printed collateral, various signage….and more.  All with modest results and high expense.

Harry Victory_Spynergy_Portraits_912In 2010, we ran one of our first “CycleGiving” (charity fundraising) rides, and since then it has exploded into a powerful engine that has dramatically impacted our studio as well as the dozens of franchises that have recently opened.  The model is simple:

  • We make certain class slots available for fundraising rides
  • We connect to small and large local causes looking to raise money
  • We provide the facility and instructor
  • The ‘Cause’ group brings riders in and charges “per bike”
  • 100% of the proceeds goes to the charity 

helping%20handThis has been an astounding boon to our business.  As of this writing, we are running 3 to 4 CycleGiving rides PER WEEK.  In the first quarter of 2017, our studio has generated over $25,000 in donations to dozens of local causes.  At the same time, these in-studio events have driven hundreds of brand new riders and first time visitors into the studio.

Simply put, CycleGiving is now an integral part of the DNA of our business….with the following results:

  • Raising money for great local causes
  • Connecting CycleBar to the community in a powerful way
  • Driving new riders into the studio

Instructor Philosophy: One example, the essence of CycleBar

Most boutique fitness studio concepts are ‘instructor-driven’, as much or more as they are ‘workout driven’.  If you ask boutique fitness-goers why they prefer one cycling class, yoga class, or bootcamp class over another….in the same studio, the answer is almost always “I liked the instructor better”.  In my opinion a) finding and b) training top talent is one of the top challenges for business success.  Your studio can get everything else right, but if you miss on this piece, you will struggle.   Here is an example of an instructor philosophy from one successful cycling studio.   I am not recommending this as a philosophy, just showing one example that has worked….there are many.

What Sets CycleBar instructors Apart?

Katie 3_Spynergy_Portraits_161First and foremost is a personal energy that is genuine, motivating and engaging: an ability to inspire and entertain, while providing an amazing workout. With that energy as a baseline, the further key to CycleStar instructor uniqueness is our commitment to providing a compelling variety of styles and classes.

All CycleStar instructors need great energy and genuine passion, but a proven way to appeal to your community is to hire a diverse instructor team (including men, women, younger people, older people, athletes and non-athletes), with a broad range of musical tastes, styles and personalities.

variety |vəˈrīətē|
noun: the quality or state of being different or diverse,
the absence of uniformity, sameness, or monotony…

Without variety, exercise is typically drudgery. With variety and special energy, exercise becomes much more than a workout; it becomes an experience. A compelling, riveting, addictive, emotionally satisfying, fun experience.