As we start the new year, many people are thinking about getting fit as their resolution for 2020. The health and fitness industry in the U.S. generates more than $30 billion in revenue and is growing every year. A big part of that revenue is driven by franchises. Entrepreneur’s 2019 Franchise List includes five fitness brands in its top 100 with Planet Fitness ranked the highest at number 7. Other successful brands include Anytime Fitness, Orange Theory and Jazzercise.
If you have a successful gym, health club or fitness center, you may be considering whether to franchise. Franchises have many advantages for franchisors. They provide a faster and more economical way to expand a business, increase revenue and build a strong brand. Franchisees benefit from having the support and credibility of the franchisor to help market and grow the business.
As with any business endeavor, business owners must carefully weigh whether franchising is a good option for them. While in many ways, fitness-related franchises are just like any other franchise in terms of the pros and cons of franchising, there are a few unique issues that should be considered.
Start-up costs. As the franchisor, you will have significant upfront costs related to business plans, legal documents, operations manuals, marketing materials and other expenses. However, you also must consider the start-up costs for franchisees. Gyms have expensive equipment and often require large spaces. As a result, franchisees will want a franchisor who will help them reasonably recoup that investment.
Royalties. Franchisees typically pay a royalty to the franchisor for use of trademarks and business systems. The amount may be based on a percentage of the franchisee’s revenue, a minimum amount, or the greater of the two. Health clubs often sell annual memberships which provide some regularity in revenue, but there is also a seasonal aspect to the business with new members joining at the start of the year or before the summer. This may mean big fluctuations in royalties.
Legal requirements. In addition to laws and regulations that apply to businesses generally, certain states and local governments have laws relating specifically to health and fitness clubs, including laws requiring postings concerning steroids and other drug use, requiring certain medical equipment in the club, limiting the supplements that health and fitness clubs can sell, requiring surety bonds if a health or fitness club sells memberships valid for more than a specified period of time, requiring club owners to deposit into escrow certain amounts collected from members before the club opens (so-called “presale” memberships), and imposing other restrictions on memberships that health or fitness clubs sell.
While none of these issues alone should prevent a franchisor from moving forward with launching a franchise, they are items which raise the costs for franchisees, which can make it harder to sell a fitness franchise as opposed to other types of franchises.
Franchising your gym or health club can be very lucrative, but it is important to discuss the specifics of your situation with an experienced franchise attorney and business advisor. If you have questions about franchising your business, contact Lusthaus Law.
