Reinvest in Success in LA!

It is an equation that pays handsome dividends to all involved. Industry suppliers serve clubs. Clubs, in turn, serve their members. And fit and healthy members serve their families, employers, and society. And the energy, the fuel, that drives the process is simply: efficient commerce.

It’s a remarkable and rewarding system, one in which all of the participants profit. Club operators owe much to the vendors who provide the products and services that make their business possible. The vendors are indebted to club owners, the source of their livelihood. Members depend upon both to obtain quality health and fitness services.

It’s a win-win-win-win scenario.

A dynamic sprawling system, it involves thousands of manufacturers and tens of thousands of clubs throughout the world. But, at least once a year, it takes on substance, assembles in a single place. At IHRSA’s 2012 International Convention and Trade Show, March 14-17 in Los Angeles, the entire industry—fitness professionals, industry suppliers, and end-users—will come together.

…And commerce will become concrete.

The IHRSA Health Club Consumer Report: 2011 Health Club Activity, Usage, Trends & Analysis is clear on the connection between club utilization and membership longevity. In 2010, some 22 million “core” users—ones who’d visited their clubs at least 100 times that year—remained members for an average of 5.4 years. “Casual” users (less than 50 visits per year) averaged 3.9 years. That’s a difference of approximately 18 months!

The conclusion is obvious; retaining satisfied members is key to profitability.

The clubs that seem to be doing the best job of creating core users are those that invest, and regularly reinvest, in the member experience. They do so, in part, by providing for ongoing employee education and making thoughtful capital expenditures (CAPEX). They enhance, improve upon, their offerings with additional fitness equipment, a new front-desk design, a software upgrade, an expanded parking lot, etc.

According to the 2010 IHRSA Profiles of Success, in 2009, leading clubs invested a median $40,000 in fitness equipment and $45,000 in facility and grounds. Multipurpose clubs allocated roughly $69,000 to facility and grounds.

So, how much CAPEX is right for your business?

A briefing paper on the topic available on ihrsa.org provides the following guidance:

A CAPEX budget that will keep a club vigorously competitive over a 10-year period doesn’t follow a straight-line formula. One way to budget CAPEX is by determining the percentage of revenue that needs to be allocated to this expense on an annual basis. Using the “percentage of revenue” method, and allowing for all the factors relating to wear and tear and essential improvements, a sensible CAPEX budget might look something like this:

Year 1:  0%                         Year 6:  4%
Year 2:  3%                         Year 7:  4%
Year 3:  4%                         Year 8:  20-25%
Year 4:  10%-15%             Year 9:  4%
Year 5:  4%                         Year 10: 4%  

Using this formula, if we take the mean expense for years 4 and 8, the average annual CAPEX over a 10-year period would be approximately 6% to 6.5%. (To read the complete briefing paper, log on to ihrsa.org/club-resources.)

IHRSA’s 31st Annual International Convention and Trade Show is a wonderful place to consider what items you should include in your CAPEX budget. See you in Los Angeles!