If you ever thought of opening your own gym in your garage or even an affiliate in a larger warehouse, you probably stopped short because you had no clue of how much money you would need, what your monthly expenses would be, or how much you should charge your members.
In this article, we will take you through the process of opening a gym and map what kind of expenses you will have running it. You will also learn how you can anticipate the amount of cash you are going to need to open and keep it running until the business can sustain itself.
The best way to do this is to by organizing all of your major expenses in a cash flow statement so you can have a 30,000-foot view of your expenses and how changing one variable (such as rent) will affect your bottom line.
We will list the different types of expenses you are definitively going to have at the beginning if you rent a space to run your box in. We’ll make educated guesses on the other type of expenses we can’t know for sure yet. Our objective at this stage is to determine what the fixed costs are so that we can find how many members the gym will need to have and at what cost to cover your initial expenses.
The Cash Flow Statement
IMPORTANT: Definition of cash flow statement: a summary of the actual or anticipated incomings and outgoings of cash in a firm over an accounting period (month, quarter, year). (source)
Your largest expense is going to be how much you pay to rent the space you will establish your gym in. Aside from studying the location and other desirables (easy location, high traffic area, no competitors nearby, parking lot, etc.), the main things that you have to look for in a building for a future box gym facility are:
- a high enough ceiling (15 to 20 feet) so you can hang rings to do muscle-ups and ropes to climb.
- enough space to comfortably fit all of your athletes in. A good rule of thumb is
125 sq. ft. per athlete in a class of usable workout space (not counting front desk, bathrooms, etc.)
To determine how much space you will need, we need to determine how many people you will have showing up at your door during peak hours.
NOTE: As you will see as you continue to read this post, all the estimations that we make are around the number of athletes you can realistically host per class at your facility. If you overestimate the numbers of athletes you can acquire, your costs are going to shoot up.
As you will see as you continue to read this post, all the estimations that we make are around the number of athletes you can realistically host per class at your facility. If you overestimate the numbers of athletes you can acquire, your costs are going to shoot up.
We are going to get a bit conservative here and assume you can host 12 people-classes at peak hours and you are trying to fill the remaining time slots (up to 12 people per class). With our estimation of 125 sq. ft. per athlete, that gives:
To keep this guide as close as possible to reality, we randomly picked a city (Mesa, AZ) and looked at the monthly cost of an actual warehouse for lease close to other CrossFit boxes.
The one we ended up choosing costs $0.9/sq. ft. a month. One thing to keep in mind is that while an industrial warehouse will rarely have things like offices and bathrooms ready to use, often the landlord will handle that for you. Be sure to include it in your lease negotiation. The total cost for rent is:
A decent estimate for utilities (heat, electricity, gas) is $2-3 per year per sq. ft. of your warehouse. This will hold true unless it’s too big or too small, or the place you are at is considerably more expensive than the norm. It’s going to vary from area to area, as bills during the winter in California are significantly less than someone paying a hefty bill in Belleville, MI. Most folks will be within realistic numbers with this estimate, though.
Our warehouse is located in Arizona, so we won’t have heavy expenses with heating for the winter. We will take $2/year for that reason. We are also going to add an additional 20% for monthly supplies (whiteboard, markers, paper, toiletries, bins). For utilities, we have:
Here at Fringe Sport we already have packages for multiple athletes. We use these to make estimates of how much you can expect to pay in equipment per athlete. We currently have three tiers of packages for garage gyms: bronze, silver, and gold. I’m going to pick the middle ground and go with Silver, our middle tier (duh), for the purposes of this post.
You can expect to pay around pay $1,000/athlete when outfitting your gym, based on $12,000 worth of equipment for the 12 people-class we expect to fill.
I’m going to apply a 10% surplus for equipment costs for simplicity’s sake – if you are looking into more detail on how to finance your equipment, please visit this page. But again, for this example, that will be around $1,100/month worth equipment costs during the first 12 months, assuming we don’t need more gear.
There will be a point when you no longer will be able to coach all of your classes and will need to hire another coach to help you, for 2 reasons: a) to avoid burnout and provide quality coaching for all of your classes b) transition to work less in your business and more on your business.
The average hourly pay for a Level 1 trainer in the United States is about $20-25/hour or about $2,200 in monthly salary if the trainer works 25 hours/week. But you also have to account for other employee expenses such as Medicare and social security, which can be rounded to 12% of the employees' salary. Our final number for trainer expenses are:
This will vary immensely from business to business. I scoured the section dedicated to box owners of the official forums and a commonly found figure is about $200/month for insurance so we will use that as our estimate.
Having professional bookkeeping software will save you tons of headaches down the line. For a small business, you probably won’t have to pay more than $50/month for bookkeeping software. Here at Fringe Sport we use and recommend QuickBooks.
Affiliation fees to open and maintain a gym under the CrossFit brand are $3,000/year ($250/month) for the gym and $1,000/year for each additional trainer.
No month will go by in any gym in the world without members leaving. This will be difficult to calculate as months go by, so we are going to exclude the churn rate calculations from this post.
Okay, so I’m going to stop stabbing your heart with expenses and show you the light at the end of the tunnel. The next step to see when and how much money you will you need to stack before your business becomes profitable is listing all the profitable activities you will be engaging in.
Although you can sell merchandise, drinks & snacks at your gym, memberships will be your biggest source of income. To make sure you have enough money to keep the business running even in the worst-case scenario, we will make 3 different simulations using different rates of new members per month (a good, a medium, and a bad). We’ll do two different ones on top of those for how much they are going to pay for their monthly membership, and see how that affects your cash flow.
A natural inclination a lot of aspiring affiliates have after looking around and seeing boxes charging upwards of $200/month for a gym is to want to undercut them by pricing their membership closer to a commercial gym at something like $80/month.
The problem with that, however, is that commercial gyms can spread the cost of their membership across their entire member base counting on the fact that the majority of members won't step a foot in the gym. The business model of affiliates is the complete opposite. Affiliate boxes rely on people actually showing up to thrive as businesses.
With that in mind, after we run the numbers for a cheap membership price and a more expensive one, you will understand why almost all box gyms are more expensive than traditional commercial gyms and why charging sub-market rates might not be a sustainable business strategy.
Let’s analyze how many members you need to break even at $80/month and $150/month. We already broke down our expenses for fixed costs, so we add them all up to find our monthly fixed cost:
- Rent: $1,800/month
- Utilities: $400/month
- Equipment: $1,100/month
- Employees: $2,500/month
- Insurance: $200/month
- Affiliation fees: $250/month
- Bookkeeping software: $50/month
Now we just need to divide that cost by the membership price to find out the number of members necessary to cover that:
- at $80/month: 79 members
- at $150/month: 42 members
Note that you will have to work harder at $80/month. If you need to land more clients and coach more classes, more members mean more people using electricity, water, supplies, etc. causing your utilities costs to go up. Also, you may need to buy more equipment and it will deteriorate faster as there will be more people using it.
How will the number of members affect your take-home pay?
Calculating Gross Margins
The formula to calculate your margins are:
You calculate margins by dividing profit by revenue. What happens when fixed costs go up, because you have more members then? Your margins go down.
For example, let’s assume your revenue for a particular year was $200,000 and your fixed costs were $60,000. That gives you a 30% margin. By admitting more members at a cheaper price, what you are doing, essentially, is driving your costs up more – let’s say $10,000/year more, reducing your margins to 25%. If your membership costs are too cheap, this will drive costs up, margins down and take home down by a lot, all the while using the same or more resources.
Developing your cash flow statement
The last step to find out how much you will be earning in a specific month down the line, as well as find out how much cash you must have to fund the business until it is profitable is to sum profits and expenses month-by-month.
To make sure you don't daydream your way into a $50,000/month business in a spreadsheet only to have your expectations fall flat when you open the box for your first client, let’s run numbers for 3 different scenarios: a very good one, a medium one, a more realistic one and finally the bare minimum you think you can achieve every month.
Let’s go with a very optimistic scenario and assume we can land 9 new members/month:
We can see that using a very optimistic scenario you would be able to be profitable by M6. To find out how much money you need to keep the business afloat until then, simply sum the Accumulated Deficit/Profit of each month until the profitable month (M1-M5 in this example):
What you have to do now is calculate how much money is coming in for each of the three scenarios you predicted – say, a bad one with 2 new people a month, and a medium one with 5 new people a month. We won’t do it in this post as you just have to repeat the last step with different values.
This post was meant to give you a bird’s-eye view of the expenses and profits you can expect to have with your gym. Naturally, if you ever decide to open your box, you will realize that some costs are not covered in these estimations, but they should give you a nice ballpark figure.
A good exercise for you to do now would be to make several calculations using wildly different scenarios (e.g. maybe cut the rent and run the biz from your garage for some months) and see how that affects your bottom line. To facilitate that, you can create either your own spreadsheet or download our 36-month spreadsheet model (you probably won’t want to go farther than that).