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Entries in financial (8)

Thursday
Jun012017

Identify and Monitor Key Performance Indicators (KPIs) to Keep Your Health Club Fit

You didn’t get into the health and fitness industry to monitor financial key performance indicators (KPIs). But that doesn’t make them any less vital.

While tracking KPIs may seem tedious, the process will help you to run your club more efficiently, increase revenue, and help more members get fit. Besides, if you don’t keep an eye on your KPIs your business could falter.

Continue reading "Identify and Monitor Key Performance Indicators (KPIs) to Keep Your Health Club Fit."

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Tuesday
Jan172017

More Money, More Problems? How to Avoid Growth Pains in the Health Club Industry

This is an IHRSA featured post, brought to you by ABC Financial.

You’re in business to make money. That doesn’t mean that an inflow of cash solves all your problems, especially in the health club business, where volatility is the norm. Membership fees, employee turnover, equipment upgrades, and servicing—these are just a few of the unpredictable cost variables of health club management. 

Tracking cash flow and managing funds for growth in the midst of ongoing market disruptions requires special expertise. A bookkeeper with a QuickBooks account isn’t going to cut it. 

Continue reading "More Money, More Problems? How to Avoid Growth Pains in the Health Club Industry."

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Monday
Nov212016

Best Practices: 4 Financial KPIs to Watch at Your Health Club

The following post was written by John Atwood for our Best Practices series.

Question: As a club operator, I know it’s important to constantly monitor financial data, but there’s so much of it! Which numbers should I scrutinize every month?

That’s a good question. Understanding your business and knowing which metrics to monitor is a must if you’re going to manage and operate at your best. While there are many line items you can review and compare with your budget projections, there are four main key performance indicators (KPIs) that I suggest you study regularly and carefully.

KPI 1: Net Growth of Memberships

I like to call this your “No. 1 key metric.” Many operators are fooled when they look only at new member acquisitions, but don’t realize that there may be a “member leak” trickling out the back door.

It’s essential to take the time to ensure that your retention rate is high, and also take steps to see that it remains that way. For instance, have your staff place “reminder calls” if a particular member doesn’t come in for two weeks; add to and make adjustments to your programs; and hold member appreciation events. Such efforts connect a member to your club in a deeper way.

Your total number of members, of course, includes new and current members minus the dropouts. This metric is virtually impossible to reasonably compare to industry averages, so you should set your own goals and adhere to them. That said, as a general rule, attrition should never exceed 30% per year. The rates at better clubs will be lower.

KPI 2: The Cost of Acquiring New Memberships

The goal is to keep the cost of acquisition to no more than the equivalent of two months’ worth of member dues. We often find that, while clubs are growing their membership base, the expense involved is so high that they don’t break even for up to six months. Creative marketing, strong referral programs, and savvy outreach initiatives all drive membership growth—and, at the same, help reduce the cost.

KPI 3: Ratio of Payroll to Revenues

We’ve found that, in the case of upscale facilities, payroll tends to hover between 38% and 44% of revenues. Multipurpose clubs fall at the higher end of the scale due to extra payroll costs associated with pools, tennis departments, childcare, etc. On the other hand, the percentage is much lower in the case of high-volume/low-priced (HV/LP) operations.

Clubs that exceed 45% should regard this as a red flag and adjust accordingly, unless they’re in the startup phase.

KPI 4: Nondues Revenues as a Percentage of Overall Revenues

Depending on the kind of club you have, the IHRSA benchmark figure you should shoot for could be as low as 18% or as high as nearly 40%. That said, we believe most clubs should strive for a nondues revenue percentage of not less than 30%.

Profit centers such as massage, personal training, or swim and tennis lessons should have revenue goals that each manager, trainer, tennis pro, and swim coach is held accountable for.

We know of one club company that even has goals for its parking attendants!

In addition to these four gauges, there are several other club-specific KPIs that should be tracked monthly. IHRSA offers the IHRSA Financial Management Tool, which can be used to forecast and track all KPIs. This comprehensive set of financial spreadsheets has helped countless operators gain control of their business’ performance. The cost is $995 for IHRSA members, and $1,495 for nonmembers. 

John Atwood
Managing Partner
Atwood Consulting Group
Boston, MA 

Wednesday
Jul202016

Strategic Technology Investment Can Yield Cost-savings for Health Clubs

This article is part of a series on technology opportunities for the fitness industry.

Sometimes, it seems like health clubs have a love/hate relationship with technology. 

It’s widely accepted that technology can improve club operations and the member experience, but, with the plethora of tech solutions in the fitness market, choosing the right products can be dizzying for health club owners. 

Sure, investing in technology might be complicated and expensive—but it’s necessary; experts agree that tech investments are key components to running a successful health club in today’s increasingly competitive market. 

Why It’s Important for Health Clubs to Invest in Technology 

“It comes down to a financial bottom line—if you don’t invest in technology, you have very little capability of communicating with your members, and you have very little capability of communicating with the equipment that you’re using in the clubs,” says Paul Lockington, new products development manager for Orangetheory Fitness and Fitness Industry Technology Council (FIT-C) board member. “And without those two communication links, you’re going to be hard-pressed to generate cash to pay the bills.” 

And, while fear of accumulating more bills is why many health club owners don’t make substantial technology investments, spending your money wisely in the tech space could ultimately benefit your bottom line. 

“You can substantially increase your ROI using technology properly,” says Dave Johnson, co-founder of ECOFIT, a networking cardio fitness equipment company out of Victoria, British Columbia in Canada. 

Johnson, who also serves on the FIT-C board, says health club owners who have limited resources should be making strategic technology investments in order to satisfy members and keep facilities running smoothly. 

Continue reading "Strategic Technology Investment Can Yield Cost-savings for Health Clubs."

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Friday
Apr152016

Best Practices: Health Club Financing Options

The following post was written by John McCarthy for our Best Practices series

Question: I’m planning to open a health club. What are my options with respect to financing? 

John McCarthy: The main sources are debt financing from conventional lenders, private investors, landlords and equipment suppliers, and private equity funds. 

For debt financing, lending institutions are currently financing at rates ranging from 5% to 8%, for periods of three to 15 years—depending on your history, the quality of the collateral, the projected debt coverage ratio, the predictability of cash flows, the business experience of the ownership group, the expertise of the operating team, and the general economic environment. Personal guarantees are usually required. 

Private investors expect—within five to seven years, at most—annual cash-on-cash returns of 7% to 14%, depending on the current rates of return. Often, they require an option to be cashed-out of their entire investment within a specified number of years. A seven-year return on investment (ROI) is common. 

Where vacancy rates are high, landlords are often willing to help with build-out costs, although this may lead to much higher rental rates. Nearly every fitness equipment company offers attractive equipment leasing arrangements. 

Finally, private equity funds may finance leading regional players. Generally, they expect to cash out of their investment within five to seven years, and to average a compound ROI of at least 20%. 

John McCarthy
Executive Director Emeritus
IHRSA
Weston, MA

Wednesday
Mar192014

Public Progress!

© tashatuvango - Fotolia.comOne of the great things about publicly held, fitness-related companies—be they health clubs or equipment manufacturers—is that they publish their metrics on a regular, quarterly and annual basis. Private companies are rarely that forthcoming. By doing so, the publics provide an instructive snapshot of the industry’s performance as a whole. And the news for 4Q and the full year of 2013 is uniformly good. CBI trusts that 1Q 2014 will be even better! Read on:

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Monday
Feb062012

What percent of bad debt are write-offs? 

Bill McBride and Barry Klein discuss what precent of bad bebt are write-offs in this week's Best Practices

Q: "What percent of bad debt are write-offs?  What percent of accounts receivables is used for bad debt reserves?  Or do you use a percentage of gross revenues?

A: Bad debt has several variables.  The first starting with how you sell memberships.  The more “high pressure” your sales force, the higher your bad debt will be.  At Club One, we typically budget and measure bad debt as a percentage of total dues.  We’d like to have bad debt (which is actual write offs) to be below .09% of total dues.  In actuality our bad debt comes in around .05-.07% of total dues.  After a non-payment or bounce back of dues, we internally work the account for 90 days before sending to collections.  About half of our memberships are month-to-month and the other half one-year that roll to month-to-month.  With our non-pressure, consultative sales approach, we expect lower than average bad debt.  Another metric to consider internally is the various bounce rates on checking accounts, debit cards and credit cards.  While transaction fees are lower on checking accounts, bad debt may be lower on credit cards.  This is worth looking at based on your membership base.  One more component to consider in evaluating your bad debt circumstance is your cancellation policies.  Stricter cancellation policies will obviously lend themselves to higher bad debt as people may chose to simply “walk away” from paying what the agreement states based on their usage or perception of fairness. Managing transaction fees, sales processes, termination policies, EFT account selection and collections are important components of club management.

Bill McBride, President & COO
Club One, Inc.

 

 


A: In any given month, a club will likely fail to collect 5% to 10% of its monthly draft, and anything more than 5% would be cause for concern. We typically discuss this percentage specifically as it relates to the monthly draft, vs. gross revenue, because clubs have wildly different revenue streams. What we want to know is how much we are collecting compared to what we bill out to our members every month.  We would defer to an accountant for the percent of A/R that might be used for bad debt reserves, but less than 1% of your monthly draft is hopefully all you would be compelled to absorb as bad debt.  In order to keep your collections engine churning, we highly recommend the outsourcing of billing and collections to one of the fine 3rd party industry billing companies. Most clubs cannot come close to what these 3rd parties can do for you – automatically rebilling delinquent accounts, automated calling, automated updates of credit card expiration dates, etc.  Maximizing your monthly drat and having a repeatable, automated process for dealing with slow and non-payers can keep these percentages in check.

Barry Klein, Owner
Elevations Health Club

 ###

This post is a part of our weekly Best Practices series. We post a new question and answer every Monday morning. If you have a question you'd like our Industry Leaders to answer, submit your question today.

Monday
May312010

Cash Conundrum

Scott Lewandowski, Bill McBride, and Jarod Cogswell offer their help to a club owner who is struggling to predict membership revenue in a cash based society:

Q: “The health club industry thrives on predicted revenue streams from contracts. Unfortunately, for us, this is not possible due to absence of a national E-commerce platform coupled with a society that still prefers cash over credit. We offer open-ended, pre-paid duration based memberships with the highest duration (annual pre-paid) offering the highest discount. This is a very uncertain and crude collection method in the sense that we don't know how many clients will renew next month since 80% plus prefer monthly package over the annual one due to lump some payment. What can we do to improve our receivables base?”

A: Start with a membership agreement that includes personal information, length of contract, risk of liability, and the cancellation policy. Since you mention most members pay with cash, I would discourage month-to-month memberships and encourage no less than 6 month and no more than 12 month agreements with the membership rolling over into a month-to-month agreement until the member cancels in writing.

Additionally, here are two tools to manage your account receivables and minimize the time from when you send bills and receive payment unless you hire an automated billing company.

Create a sales analysis report that lists all of your membership types. Breakdown each membership type listing active members, membership adds, deletions, suspensions, and estimated dues for the month. Compare the report on a monthly basis watching for favorable and unfavorable trends.

Another report is an aged trial balance listing outstanding balances of members by length of time. The report should include name, contact, amount owed, and how long since last payment.

Lastly, a policy for your company needs to be established on when access will be denied until the unpaid balance is collected.

Scott Lewandowski, Regional GM/Fitness Director
Fitness Formula Clubs
sl@ffc.com
www.ffc.com

A: The easiest way around this would be to creatively design various membership options that allow for installment payments (even via cash) while highly encouraging longevity. One way would be to do an annual membership with the first and last quarter paid in advance and at the end of the first quarter, they would pay for Q2 and then at the end of Q2, they would pay for Q3… the last Quarter could be used for Q4 or they could extend (but always having their last quarter prepaid as a deposit to encourage the install payments or risk losing the “deposit”). This would allow for more payment flexibility and still increase at least Q2 and Q3 renewals. Coming up with an incentive to renew for subsequent years (either using the above system on a two year basis) or adding in service incentives upon 2nd year renewal. I would suggest you brainstorm with some of your staff and some of your customers various consumer friendly options that incentivize longevity and allow for the cash payment system currently in place while honoring all laws in the jurisdictions in which you operate.

Bill McBride, Chief Operating Officer
Club One, Inc.
bill.mcbride@clubone.com
ClubOne.com

A: This is a challenging one. Not having all of the information may be needed (# of current members, type of club, etc.), I will do my best to offer suggestions.

First, I agree with Thomas Plummer's philosophy on monthly revenue... It does help pay the bills. However, if your attrition rate is as high as 70% (for monthly agreements), then you need to be flexible, which seems like you are doing. With that said, I'm not sure if I would offer too many options. I would suggest offering monthly and annual packages only.

Monthly
To address your attrition issue with this group, evaluate member usage carefully. There are a lot of programs that will help with this. We use Retention Management. If a member hasn't used the club in 4-6 weeks, the program will automatically send him/her a fitness tip and we follow up with a courtesy call and ask them if they would like a complimentary Personal Training session (or two) and/or invite them to a special event. Most members are very appreciative of the call.

Do you have a strong new member integration program? Solid retention begins at the start of one's membership. Our hope is that a new member utilizes the club 8-12 times in the first month. We're also looking at giving their joining fee back if they utilize the club 30 times in the first 90 days. Once they are serious about their program, they are least likely to quit.

The bottom line with monthly agreements is that you need to tighten up your retention, so that it does less damage to your business.

Annual
This is a little difficult because you stated that your society prefers cash over credit. I suggest giving them a little more incentive. Call it a "VIP Package". Don't charge a joining fee, give them 15-20% off dues, x number of personal training sessions and perhaps other complimentary ancillary services. Make it as attractive as possible.

I think if you delete the quarterly and half-yearly options, you will be OK. I'm guessing that these individuals are not making a long-term commitment (same as your monthlys), therefore their retention isn't great as well. Quarterly and Half-Yearly agreements seem like short-term cash options vs. a commitment.

Jarod Cogswell, General Manager
ClubSport Oregon
jcogswell@clubsports.com
www.clubsports.com/oregon