In any business, keeping track of the finances is important as it gives insight into the business' success and growth. The fitness business is no exception as the numbers are a great gauge for determining profitability. If you do not have accurate knowledge of the numbers as a gym owner, you will eventually sink the gym as you would not know if you are even breaking through.
There are several financial metrics that can provide a clear picture of how the gym is doing. With these numbers, you can track business growth per month and also use them as indicators for gym goals. For this purpose, you need to be knowledgeable about these numbers. If you don't feel like this is in your wheelhouse, it is advisable to set aside a budget for hiring an accountant.
There are also gym management software and accounting software that could be used to make bookkeeping easier. Here are some of the important numbers to look out for as a gym owner.
Revenue
This is simply the total amount of income accrued from sales of products and services offered by the gym. Revenue could be from a single source or multiple streams. When it's from the latter, it is referred to as Total Revenue. For gyms with multiple streams of income, revenue from each stream can be categorized accordingly for proper documentation. For example, a particular gym could have:
- Membership sales revenue
- Home training revenue
- Sales revenue
- Events revenue
- Premium service revenue
Segmenting them into various categories is necessary as you get to monitor the profitability of each stream. Additionally, there is gross revenue and net revenue. Gross revenue is the total revenue from all payment options while net revenue is what is left after deducting all fees and refunds from the gross revenue.
Understanding revenue calculations is important so you can calculate profit from each revenue stream. This helps you understand which stream is successful and the ones that need more attention.
To calculate Net revenue
- Gross revenue - Fees/Refunds = Net Revenue
Keeping track of a gym's revenue through the traditional spreadsheet is no longer advisable as the industry is evolving. Using gym management software and accounting software like QuickBooks is more effective and efficient as they offer various tools and also makes categorization of multiple streams easier.
Expenses
This represents the sum of money flowing out of a gym every month. It includes all operating costs, running costs and credit paid back every month. A gym owner usually has to deal with two forms of expenses, namely startup expenses and operating expenses. The former includes expenses that go into starting the gym. This can include rental, lease or purchase of facility, renovations, equipment, registration and others. While operating expenses refer to expenditure spent towards keeping the gym running every month.
Expenses could also be in the form of fixed costs and variable costs. Fixed costs refer to expenses whose costs remain the same while variable costs are expenses that are not drawn and vary from month to month depending on the gym's activities for the month. There are also semi-variable costs which also fluctuate but not as much as variable costs such as bills, staff payroll, etc.
Keeping track of the gym's expenses helps determine the amount of money flowing out of the gym which is helpful when determining profitability. For a gym to be profitable, revenue should be higher than expenses and not the other way round.
Proper monitoring of expenses will help you know if the gym is profitable. And if not, you need to balances the books and finds ways of cutting expenses to keep the gym in business. The gym's expenses can be tracked with a gym management software or accounting software like QuickBooks.
Expenses can be calculated by
- Fixed costs + Variable costs + Semi-variable Costs = Expenses.
For example, where
- Rent = $5000/month
- Equipment = $2000/month
- Utilities = $800/month
- Insurance = $400/month
- Payroll = $3000/month
- Then total monthly expenses = $11,200
Profit
This refers to the amount of income left after deducting all debts, expenses and expenditure. It also refers to the amount of gain accrued after deducting the amount spent from the amount earned. This number is very important as a gym owner should pay attention to whether the gym is gaining or losing.
There is also Profit Margin which indicates the difference between sales and costs in a business. Having an accurate profit calculation helps a gym owner know if the business is profitable and by how much. Knowing the amount of profit gained will help you consider reinvesting into the business to gain even more profit. And if the profitability is in deficit, then you should consider ways of improving it or cutting costs.
To calculate profit
- Net Revenue - Expenses = Profit
- Profit / Net Revenue= Profit Margin
- Profit Margin x 100 = Profit Margin Percentage
Average Revenue per Member (ARM)
This number indicates the amount of income gained through each gym member. Determining the average revenue per member helps you set prices right for profit and also determine if you are getting paid enough per member.
Also, knowing this number helps you know how many new members the gym needs to acquire to hit a certain revenue and if you need to add alternative income streams to membership sales.
Average revenue per member can be calculated by dividing total revenue by the number of members the gym has. This number is also affected by the number of members with an active membership as at the time of calculating it and also the number of members who have paid in full for the year.
To calculate ARM
- Total Revenue/Number of Members = Average Revenue Per Member
Average Client Lifespan
This number refers to the average amount of time each member spends with the gym. It gives insight into how long each past client maintained a membership at the gym before they exited so you can know how long members are willing to stay with the gym.
It is calculated by dividing the total number of months all last members spent with the gym divided by the number of past members. Although a new gym might not have members that have left, as soon as you experience a member, you should start keeping track of it. Having this information will help you determine customer retention rate as well as churn rate. It also helps you make an adequate budget towards advertising and marketing campaigns.
Understanding financial numbers are important as they help you determine what is working and what is not in a gym. Without a complete recording and analysis of these numbers, a gym could be on its way to getting closed down due to low profitability. So it is important that you understand these numbers as a gym owner.
