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Snap Fitness Franchise Opportunity

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Snap Fitness 1

Snap Fitness Franchise Opportunity Ryan Parish, Shelia Wilson, Christopher Maynard, Marcia Matthews, Fallon Bradford University of Phoenix- ACC/561 October 4, 2012 Myrtle Clark

Snap Fitness 2

Snap Fitness claims that the number of people who go to the gym has doubled over the past 20 years and that this number will rise as the “baby-boomer” generation is in search of eternal youth and disease control. Team B is looking into the opportunity to start its own Snap Fitness Franchise. The team will examine Snap Fitness specifically with real-world cost and net income goals. Finally the team will come into an agreement regarding whether entering into a franchise would be a good idea. Estimated Variable Costs Each Snap Fitness franchise location incurs fixed costs of $4,000 per month in expenses in addition to $2,000 in leased equipment. To determine the variable costs, Team B will use a local newspaper’s estimation that only 300 members would be required to break even, each paying a monthly fee of $26. Snap-Fitness Break Even Analysis For the month Ended June 30, 2010

Break Even (300 members)

Total $ 7,800

Fixed Costs

$

6,000

Total Variable Costs

$

1,800

Contribution Margin

$

6

The total variable cost for Snap-Fitness is $1,800, which means each member has a contribution margin of $6.

Snap Fitness 3 $10,000 Net Income With the membership contribution of $26 monthly, Snap Fitness needs to determine the amount of sales in members and in dollars needed to achieve a target net income of $10,000 for this month. In this case, the contribution margin will work to the advantage of Snap Fitness by subtracting the contribution margin of $6 per customer from the break even monthly fee leaves the net profit to be $20 for each customer. The fixed cost for Snap Fitness has been determined at $6,000. If this cost is added with the desired target net income, the calculations for monthly sales for members and in dollars are explained as follows: •

Monthly sales for members = (fixed costs) $6,000 + (target net income) $10,000 /

(net profit) $20 = 800 members. •

Monthly sales in dollars = (fixed costs) $6,000 + (target net income) $10,000 /

(net profit) $20 x $26 = $20,800. Therefore, Snap Fitness should aim for 800 members who will bring in $20,800 in revenue and yields $10,000 after costs. Five Variable Costs Variable costs are costs that vary in total directly and proportionately with changes in the activity level. With 300 members, variable costs must stay under 1,800 dollars to turn a profit. If Snap Fitness wants to sign up more than 300 memberships, a cost-volume-profit analysis should be done to maximize profits as the business expands. The following five variable costs have been accounted for at Snap Fitness. The first variable cost to consider is number of employees. At least one employee must be at the gym for a few hours a day. To start out, this employee can

Snap Fitness 4 clean the equipment and maintain the facility as well as instruct members on how to use the equipment. As membership expands, more employees may be required to help run the facility. For example, classes may be offered as a marketing tool to attract more members. In that case, instructors will have to be paid to run the classes. Monthly cost of one part-time employee will be 1,000 dollars. The second variable cost to consider is the amount of treadmills, weights, yoga mats, stationary bikes, etc. The initial equipment lease is included as a fixed cost by the franchise. However, with more members, more equipment will be required. The third variable cost is the amount of lockers. Many people work out during their lunch break, after work, or before work. These members require a locker in the gym to hold their belongings. Initially, lockers for 300 members will be provided, but as more members are signed up, more lockers are needed. The fourth is the cost of toilet paper, paper towels, towels, soap, antibacterial hand gel, etc. The more members who are showering and using the bathroom at the gym, the more costs will be accrued. Towels are also needed to wipe down equipment after use to keep the equipment sanitary. There is also a variable cost in washing the towels. This will cost 200 dollars/month. The last variable cost is the cost of the access badge and free T-shirt given to each new member. This will not be a recurring monthly charge but will cost $3.50 per new member as a one-time fee. Assuming that Snap Fitness signs up 300 members in the opening month, total variable costs will total $1,000 (employee) + $200 (towels, soap, etc.) + $1,050 (T-shirts and badges for 300 members). This would be $2,250. This exceeds the break even threshold of $1,800. However, the cost of the badge and T-shirt is a one-time fee and

Snap Fitness 5 the second month should turn a profit of $600. Also the facility could start out with the owner working until more members are signed up. Franchise or Not The idea of owning a franchise entrepreneurship like Snap Fitness Club provides the new perspective business owner with a quality low-cost fitness franchise. As partners with the Snap Fitness organization, the company offers the support to get a business started such as financing assistance, marketing campaigns, training resources, and a proven business model. Snap Fitness also offers assistance in selecting the best demographic location to make certain the franchise will be in a potentially thriving area of the city. Snap Fitness wants to help move owners toward success, therefore the company does its best to offer support while also offering years of combined experience with other gym owners. As mentioned earlier, the initial investment and the cost of maintaining the fitness center is relatively low and the fixed and variable cost of operating the business indicate the Snap Fitness franchise would be a very sound investment. The risk involved in owning a business, especially a fitness center, which has proven to be a lucrative business. There are a number of things to consider when starting a franchise. It involves various procedures to ensure that the operational costs do not outweigh revenue totals. To maintain profits, the fitness center must continue to attract customers with a 24/7 convenient fitness center with low marketing costs and maintenance repairs. Recognizing the cost-volume-analysis is crucial in determining memberships and establishing the break-even point. The franchise owners should collaborate on

Snap Fitness 6 operational standards to ensure the Snap Fitness franchise remains a growing business with satisfied customers and increasing profit margins. In today's customer centric environment, companies are working hard to improve upon existing processes and ensure the best product and service quality to customers. In the service industry such as a fitness center, it is of extreme importance to ensure the highest quality service to customers. On the basis of break-even and variable costs, a franchise opportunity with Snap Fitness appears to be a sound decision. The numbers required to break even seem doable and the amount of time required per gym is relatively low compared with many other franchise opportunities.

Snap Fitness 7 References

Kimmel, P. D, Weygandt, J. J., & Kieso, D. E. (2009). Accounting: Tools for business decision making (3rd ed.). Hoboken, NJ: John Wiley & Sons.

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