Whenever a fitness enthusiast like you hears the word gym business, the only thing that comes to your mind is profitability. You started to think that after getting some experience in the fitness industry, I am going to start my gym. However, working in a gym as a personal trainer and owning a gym are two separate things. Owning a gym can be rewarding whether you consider it in terms of finances or fostering new relationships with members.
As per Policy Advice’s research, owning a gym helps you to grow your revenue at a rate of 8.7% per year. However, ensuring that much annual revenue requires a lot of investment and time. You have to do deep market research about your target audience preferences. You also have to hire world-class professionals with relevant PT training certifications or become one to ensure a remarkable fitness experience for your members.
Moreover, competition in the fitness industry is also increasing. In order to differentiate your gym, it is important for you to understand the principles of valuing your gym. Principles of valuing your gym enable you to make a better decision to enhance your business profitability as well as enable you to calculate the return on investment.
But, still, you may have a question in your mind about how to value a gym business. There are a lot of factors that enable you to consider the valuing principles. Doing research on these factors is quite hectic and time-consuming. To assist you in adding value to your business, here we are going to discuss the factors that enable you to value a gym business.
What influences a gym’s value?
If you want to run your gym business profitability, it is essential for you to know about the factors that influence the gym’s value. These factors enable you to maximize your gym profit if they are handled correctly. However, if these factors are not handled correctly, it might lead to your gym downfall. So, it is essential for you to identify the factor that enables you to enhance your gym business valuation. Here are some of the factors that influence your gym’s value.
Equipment
One of the key factors that enable you to add value to your gym valuation is the equipment that you purchase. Your members have to use equipment to achieve their fitness goals. If the condition of the equipment is not good or is not cleaned properly, it might lead to a bad member’s experience and often lead to a decrease in members retention rate. Thus, it is essential for you to ensure that the equipment you are using in your gym is up-to-date and is often cleaned. Otherwise, it negatively influences your gym valuation.
For example, To enhance a remarkable fitness experience for your members, you have bought world-class fitness equipment in your gym. All the equipment that you purchased is highly up-to-date and follows the fitness industry standards. However, you are not able to maintain your gym equipment cleanliness.
Whenever your members use that equipment, they often feel sweat and dirt on their hands. This leads to a decrease in member retention rate and also plays a significant role in your gym’s downfall. So, it is essential for you to ensure the cleanliness of your gym equipment.
Memberships
The success of a fitness center is defined by the number of members that the gym is going to acquire, as members are the lifeblood of a fitness center. They are the ones that pay a major portion of the gym’s revenue. So, when you are going to find the value of your gym business, it is essential for you to determine the number of members you have signed up or retained. If you are not able to maintain your gym membership sales, it badly affects your brand image and also influences your gym’s effective marketing strategies.
For example, You started a gym with the sole purpose of earning profitability. To achieve your purpose, you hire world-class professionals and advanced equipment. All these efforts enable you to attract new members to your gym and enhance your business profitability. You attract around 200 members in a short span with your gym’s world-class facilities. Thus, it enables you to increase your gym valuation.
Location/size
Another important factor that influences your gym’s value is the size and location of your fitness business. If you own multiple franchise chains, you have a higher valuation of your business than an owner who runs a single gym. Similarly, the size of your gym also influences your business profitability. Usually, it depends upon the type of gym that you are running.
If you are running a strength training gym, you require a bigger space for the equipment as compared to a fitness center that offers cardio training. So, to enhance your gym business profitability, it is essential for you that you own multiple gyms at various locations.
For example, you are an owner of multiple franchise gyms located at a premium location where your members can reach after work with convenience. This convenience not only enables you to increase your gym valuation but also influences gym memberships. The number of members acquired by your fitness business increases with the increase in the number of gyms. Thus, it enables you to influence your gym’s value as well as enable your gym to establish as a brand.
Other revenue streams
If you want to increase your gym profitability, it is essential for you to introduce multiple channel revenue streams in your fitness center. Diversifying your gym revenue into other areas like apparel, supplements and events enables you to enhance your fitness business profitability and also helps you to add real value to your gym. So, it is essential for you to add other revenue streams such as rental facility, merchandise, or hosting an event to enhance your fitness business valuation.
For example, You started your gym in a location where you have to face competition with 5 other fitness businesses. You offer the same services as your competition except for providing your member’s merchandise. Offering merchandise not only enables you to attract new members but also helps you to influence your gym valuation. Whenever you are going to calculate your fitness valuation as compared to your competition, selling merchandise adds a bonus in increasing your business valuation.
Calculating the value of your gym business
After discussing the factors that influence your gym value, it is essential for you to understand the calculation that you have to do to find your business valuation. All these calculation methods enable you to assess your gym value and also enable you to make data-driven decisions to enhance your fitness business valuation. Here are the 3 methods that are most commonly used in order to calculate the gym valuation.
- EBITDA method
One of the most straightforward methods that enables you to calculate your gym valuation is the EBITDA method. The EBITDA stands for Earnings before interest, Taxes, Depreciation, and Amortization. Together, all these terms represent the market valuation of your gym and the cash flow with regard to your fitness center assets and earnings. To calculate your gym value by using this method, you have to use the formula:
EBITDA= Earnings+ Interest+Taxes+Depreciation+Amortization
However, you might have a question about where to get all these figures that enable you to calculate the EBITDA. You can get all these figures from your gym financial statements, including your studio earnings, interest and the taxes you pay. By using this formula, you can calculate multiples of EBITDA, which is then used to find the selling price or the value of your gym. Here is the table that lets you find the multiple against the EBITDA value.
| EBITDA | Multiple | Example |
| 0 to $50,000 | 1.0 to 1.5 x EBITDA | $10,000 x 1.1 = $11,000 |
| $50,000 to $150,000 | 1.5 to 2.0 x EBITDA | $120,000 x1.7 = $204,000 |
| $150,000 to $250,000 | 2.0 to 2.5 x EBITDA | $170,000 x 2.3 = $391,000 |
| $250,000-$500,000 | 2.5 to 3.0 x EBITDA | $260,000 x 2.6 = $676,000 |
- Asset-based business valuation method
You can use another method named the asset-based business valuation method. This method helps you to determine your business valuation based on your gym’s net asset value. You have to subtract your gym’s liabilities from the assets simply. This method is also used to calculate the negative cash flow in the gym business. The formula for calculating asset-based valuation is as follows:
Asset-based value = Total value of assets – total value of liabilities
This method also allows you to incorporate tangible and goodwill assets. Tangible assets include a members list, exercise equipment, franchise rights, lease agreements and account receivables. The goodwill assets include brand recognition, intellectual property, trade secrets and market share. You can incorporate all these assets and subtract them from the liabilities to extract the actual market value of your fitness business.
- Discounted cash flow method
Discounted cash flow is another method for calculating your gym’s valuation based on its projected future cash flows. You have to forecast the expected cash flow from your initial investment, discount rate, and total cost. To forecast the value of your gym, you can use the cash flow from last year’s profits and assign a growth rate to it for several years. You can calculate the forecast for up to 10 years. The formula that you can use to calculate the Discounted cash flow is as follows:
DCF = CF1(1+r)1+CF2(1+r)2+CFn(1+r)n
CF1= The cash flow for year one
CF2= The cash flow for the second year
CFn= The cash flow for additional years
R= The discount rate
For example, here is the discounted cash flow for four years.
| Year | Cash Flow | Discounted Cash Flow |
| 1 | $20,000 | $16,000 |
| 2 | $21,600 | $13,824 |
| 3 | $23,328 | $11,944 |
| 4 | $25,124 | $10,320 |
This graph shows that with an increase in cash flow, there is a decrease in discounted cash flow, and vice versa.
How can you increase the value of your gym?
After discussing the methods to calculate your gym valuation, it is essential for you to understand how you can increase your fitness business value. You can increase your gym valuation by focusing on the factors influencing your business profitability. Calculation of your business valuation enables you to highlight the areas of weakness that require rectification. Here are 5 areas of improvement to which you have to give special focus and enable your business to maximize profitability.
- Invest in equipment
If you want to increase the profitability of your gym by enhancing its valuation, you have to make sure that you have made a huge investment in fitness equipment. The state of the gym equipment has a huge impact on your gym valuation. Well-maintained and up-to-date equipment enables you to increase the figure of the calculation. However, outdated and bad-in-shape equipment decreased the gym’s valuation by frightening amounts as equipment plays an important role in ensuring a remarkable fitness experience for your members and adds a direct contribution to your gym’s profit. So, it is essential for you to make an investment in highly updated equipment to enhance your gym’s direct profits.
For example, You started your gym in a place where you are in direct competition with 3 fitness businesses. Your competition offers services to the members as per the member’s preferences but has outdated equipment. On the contrary, you offer the same service as your competition except you also have updated equipment. Having updated equipment in your gym not only enables you to attract clients but also helps you to increase your business profitability.
- Partner with local businesses
Partnering with local businesses is essential if you want to increase your gym’s profits by attracting new members. This partnership enables both you and your companion to create an environment where both companies generate revenue. In this partnership, you have to offer the members referred by your companion special discounts while your companion has to offer their services to your gym members. Thus, it enables you to attract new members and allows you to increase the profitability of your fitness business.
For example, you started your gym one year ago in the town. During this time, your fitness center attracted a number of new members and gave them a remarkable fitness experience. However, when you made a calculation of your gym valuation, it indicated that you earned less profit than you expected. The reason behind is the low number of members. In order to increase the member number, you decide to tie up with a local business.
When you conduct research, you get to know about a coffee shop that serve coffee to all the people of the town. You go to the coffee shop owner and make a deal in which your gym gives special discounts to the members referred by them, and in return, your partner offers a coffee to your members. Thus, it enables you to increase the number of members in your gym, increasing fitness business profitability.
- Offer some extras
To attract new members and enhance your business profitability, you have to make sure that you give your new members some extra discounts and offer a loyalty program to the existing members. As per Zinrelo’s research, 84% of the clients stick to a brand that offers special discounts to them. You can reward your existing members by offering them a loyalty program for achieving a milestone. In this loyalty program, you give your members certain points. Your members can claim special discounts against the points.
However, if you want to attract new members, you can offer them limited special discounts that motivate them to join your gym and enhance profitability. Thus, offering some extra to your members enables you to increase your member retention rate and helps you in increasing your gym valuation.
For example, To increase the number of members in your gym, you run a market campaign in which you offer a one-month free subscription to the members who join your fitness center till the end of the month. This free subscription allows you to attract new members and enhance your fitness center’s long-term profitability.
- Invest in staff professional development
You have to make sure that you have hired professional trainers to provide personal training to your members. Having a professional team with relevant fitness experience enables you to attract new members and also helps you ensure a remarkable fitness experience. So, if you want to enhance your member’s remarkable fitness experience, you have to make sure that you have made an investment in your staff’s professional training.
In this training, you have to provide your staff with the advanced PT training certification and enable them to learn about management skills. As, your team have to communicate directly with your members, it is essential for them that they are highly professional. This professionalism enable them to increase the member retention rate and also help them to contribute in your fitness center’s profitability.
For example, To increase your gym memberships, you hired a team of professionals with relevant skills. Your team is highly professional and politely assists your members. Their behavior and professionalism enable you to increase member retention rates. Moreover, they also enable you to promote your gym through word-of-mouth marketing by your members.
- Network to increase authority
You have to make sure that in the area where your gym is located, people in that town know about your fitness center. Having networks within the industry as well as in your town helps you to improve your gym’s reputation. This reputation helps you to increase the chances of conversion and enhance your business profitability. You can extend your networks by organizing events and seminars in the town where you invite famous fitness enthusiasts of the industry to give direct sessions to your potential leads. Thus, it enables you to earn your potential lead’s trust and increase the chance of their conversion into a loyal member.
For example, In your town, you organize an event in which you bring a famous fitness trainer of that region. You invited people from the town to take the session. This session given by the famous trainer enables you to spread awareness about fitness and also helps you to establish your gym as a brand. Thus, it enables you to increase the chance of lead conversion into loyal members and enhance your business profitability.
Final thoughts!
To ensure the success of your fitness business, it is essential for you to determine your fitness valuation. Calculating your fitness business valuation enables you to highlight the factors that need consideration and define your gym’s profitability. Based on the calculation, you can make data-driven decisions that enhance your gym valuation and help you shine among your competition.
