Gym owners need to gain valuable business insights to ensure long-term business profitability. One of the most important aspects of business is the finances. As the owner and manager, you need to track significant data that will help you crack the best system that will promote success in your fitness business.
The traditional way of managing business finances is done manually, although it can only be functional for small-scale businesses. For a growing company, you’ll need a multifunctional management system that will make it easier to analyze various financial variables. An efficient financial solution can help determine how much you can gain from your gym business.
Let’s look at the six financial points that gym owners need to track for securing business profitability.
1. Operational Costs
The operational costs are the necessary expenses entailed in running your gym business, such as rental fees, employees’ monthly salary, equipment and facility maintenance, marketing campaigns, utility bills, taxes, and occasional repair.
It’s essential to calculate the fixed monthly expenses and other variable costs to keep track of the money coming out from the business. The operational costs must always be within a budget you can afford. The target is to make sure that you’re not spending more than you’re earning.
You can use operational cost data to compare to your total revenue and net profit later on.
2. Average Membership Revenue
Calculating the average revenue acquired from gym memberships is another financial factor that will help you measure business profitability. You simply need to add up the total income from member fees and divide it with the total number of gym members.
This data will determine if you already have enough number of members that can sustain the business. It can give you direction in setting up the right membership pricing and create promotions that will help drive sales and generate targeted profit margin. It can also help you decide if you need to seek additional revenue streams to support the gym and maintain a lucrative business.
3. Average Length of Membership Retention
You also need to get the calculations on the ‘average length of time’ that clients retain their gym membership. Startups won’t be able to generate data analytics for this particular financial point. Calculating the average period of membership retention requires data for more than six months of operation.
The manual calculation for the average length of engagement is quite simple. Get the total days of member engagements and divide it with the total number of members.
Getting this data lets you see the demographics of the members who continue to keep their membership, the usual classes they are getting involved with, and what makes the others lose their motivation from coming back. From here on, you can plan further courses of action to help position your next advertising campaign at an angle that will invite new members and promote new gym services.
4. Total Revenue
The total revenue refers to the amount you generate not only from your services but also from other streams like selling products that promote health and fitness benefits for the members. Getting this calculation is much less complicated, where you just have to get the sum of all revenue from member payments.
Calculating the total revenue will help you measure actual profits and if your current system is effective for bringing in the desired ROI. This also helps you determine the strongest points of sales within your various business streams, and where the weakest link lies.
5. Total Cash Flow
If you can get all the data from the first four financial points, you can calculate the gym’s total cash flow. Your overall cash flow refers to all the cash or money coming in and out. This includes purchase payments (products & equipment replacement/addition), operational costs, payment collections, and all accounts receivable.
Calculating a sufficient cash flow does not necessarily imply that the business is profitable. In some cases, it appears to have a sustainable flow because of debts or additional capital. However, along with this process, it’s helpful to know how you can get a positive cash flow, which means getting more money in than out.
Startups may not immediately get to a state of having positive cash flow. On the other hand, long-running gym businesses are supposed to achieve a higher cash flow ratio against liabilities.
6. Net Profit
The net profit is your final takeaway. It is the total amount remaining after all the expenses are deducted. In other words, that’s the amount gained within a particular business period.
A profitable gym business means that your sales revenue exceeds the business costs, and that is due to several factors. Your management systems, for one, is a plus factor in keeping your business organized at the tip of your fingers. And your marketing strategies might prove to be converting as well.
So, the question lies here: how much do gym owners make?
The amount of profit that gym owners make vary in many aspects, and not just the financial numbers.
Let’s say that the average annual gym membership rate is between $600 and $1,000. If a gym gets an average of 100 members in a year, the membership fees alone will reach $60,000 to $100,000. You still have to top up the sales from other sources of revenue, like from selling gym products, exclusive classes, and other external activities.
Incorporating Gym Management Solutions
It’s essential for gym owners to become fully aware of the financial factors that affect business profitability. After all, everything that happens from point A to B has something to do with money.
In retrospect, it seems that focusing on how much you can make out of your business does not always promote productivity. Keep your eye on the target, but you also have to consider all the little things that cause a ripple effect on the business flow. It’s up to you to decide if you want the outcome to be positive or negative.
There will be challenges along the way, and you’ll need to have a guarantee of finding efficient financial solutions for your business. A most recent solution designed for fitness clubs is utilizing gym management software. You can benefit from incorporating its comprehensive features into your current system.
Contact Jonas Fitness to request a free software demo today.