Should You Rent a High-End Location for Your Gym?

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Mike (00:02):

That sweet but expensive retail space. Is it right for your gym? Chris Cooper will help you decide on this edition of Two-Brain Radio.

Chris (00:10):

Should you rent a high-traffic, highly priced retail location for your micro gym? This is a really important question no matter what stage of gym ownership that you’re in, because the lease decision will come up probably five or six times at least over the course of your journey and the lease location that you select can make you by just being really available to clients, setting a very high standard for value and a high price point, or it can break you by burdening you with term expensive debt. I’d say that out of a hundred gym owners that I talk to, probably 60 regret the lease decision that they made, 20 are trying to make the best of it. And 20 actually love their location. Even those who love their location are often thinking, what else is out there what’s better? Or how can I buy a building and move into that?

Chris (01:03):

And so today I’m gonna talk to you about how to make the decision based on numbers and data on where you should put your gym. Should you put it in a high-traffic, expensive retail location downtown, or should you go back to the industrial park just because it’s cheaper. The answer of course with everything is it depends. So today I’m gonna talk to you about your goals and what you should do before you make this decision. So, first off, if you are choosing a high-traffic retail, expensive location, you need to understand that your business model will be different from the person who is putting a micro gym in their garage or in a kind of out of the way place or like an industrial park where people have to travel. OK? Your business model is going to be higher value and higher value is synonymous with higher price.

Chris (01:57):

What you’re really selling here is convenience. There’s a reason that you pay twice as much to buy a milk from a convenience store, as you would from the grocery store. The reasons are it’s close, like it’s nearby, right? You can go to the convenience store in 30 seconds. It’s open at 1:00 AM when you need milk for your baby’s bottle or whatever. And you’re not gonna be able to buy everything at that store, right? You’re gonna sacrifice breadth for just the very few things that you actually need. And that’s why you pay more at a convenience store. Convenience is worth something. If you’re selling to busy professionals, what they’re really buying is speed. They don’t have time to waste. They’re not going to drive 20 minutes to cross town to come to your gym, especially on their lunch hour. So if your primary audience is busy, working higher income professionals, then yeah, you should put your gym near where they work so that they can attend on their lunch hour and get back to work.

Chris (02:54):

You should also be using up some of your floor space for things like showers, maybe even a lunch counter, because what you’re selling these people is a convenient and fast way to fit fitness into their daily plan. The mistake that you would make is to rent a highly visible downtown location, retail location, that’s very expensive and charge the exact same rate, sell only the exact same group classes and provide the same level of service that somebody else is paying far less in rent to deliver. You cannot win the high rent retail location game on volume because adding more space, exponentially increases your expenses. If you wanna go with a high volume model, then yeah, you should rent a garage somewhere to get as much space as you possibly can. So you can put 30 people in a class, but if you’re looking for a higher value audience, then you have to provide a higher value service using less space, but more amenities.

Chris (03:59):

OK? The next thing that you wanna do is you wanna ask yourself, when do I need to be open or before we even get to how much space you need, let’s think about when you’re going to be delivering your service. If your goal is to work with high value individuals and provide more of a private service one-on-one or small group, then you need to offer that service early in the morning, before they go to work, or when they’re on their way to work. At lunchtime super important. And immediately after work. You probably don’t need an 8:00 PM class if your gym is downtown or close to a mall or deals with a lot of corporate. Here’s how you tell. You look at the potential location for the gym. OK. And before you sign a lease or even maybe take a tour, you wanna look at traffic patterns.

Chris (04:51):

So you take a lawn chair or you sit on a bench and you show up at 6:00 AM, who is walking past your gym, OK. Or, who is like driving past your gym. Now, if there’s a freeway beside your gym, that doesn’t count because they’re not, you know, they’re not actually driving past, they’re just zooming on by. You wanna sit at that gym until about 9:00 AM. OK. Who goes past? Is it mostly busy working professionals? Is it people with kids? How old are they? What would you guess their income to be based on like their dress. OK. And what they’re driving or whatever, where do they park their car? How far do they have to walk to get to the office? Then you wanna come back at lunchtime and you unfold your folding chair and you sit there again. And you say, who is walking past right now?

Chris (05:35):

  1. Where do these people go for lunch? Or is it a ghost town? Do people stay in their offices and work through lunch? What do people generally do? Is it more of a market atmosphere where people are out just wandering the streets, looking for things to do? That will reflect in your business model. And then you wanna come back at around 3:30 and you wanna set up your lawn chair again, and you wanna say, what time are people leaving? Do they leave the office early at two? What happens on a Friday? Are they staying late till 6:00 PM and then rushing home? Or are people just kind of meandering out whenever they can? And that will also determine who your target audience is and when you should be offering your service. Now you can do the exact same thing if you’re thinking about renting like a low priced garage space in an industrial park somewhere, that’s fine, but you should still go and observe traffic patterns because convenience really is more important than ever.

Chris (06:31):

There was a time when people would drive 20 minutes to go to the only CrossFit gym, the only yoga studio, you only have 4-5 in town. That time is mostly gone. Now there are so many options available, doesn’t even matter what your brand is, that people will not travel more than about 11 minutes to get to your gym, especially on their lunch break. So you need to identify what your traffic patterns are. The next thing you need to look at is what you’re going to be paying per square foot. So if you’re looking at like, you know, $18 per square foot per month, like a retail type rate or above, then you probably want the smallest possible footprint that you can get away with. Do not rent extra space for a smoothie bar. OK? Because every single square foot of that space has to pay for itself several times over.

Chris (07:23):

So if it costs me 30 bucks to rent this one square foot of space per month, then that square foot has to generate at least $75 back. How is it going to do that? Is having couches going to help you? No, all that does is adds more revenue burden to every other square foot in the gym. You know, I once visited this gym in Manhattan and the owner was telling me like, oh yeah, we’re doing so great. And half of their space was being used for fitness. And so they could fit about 13 or 14 people in a class safely. The rest of their space was a smoothie bar that didn’t make any money. It was couches that just kind of cost them to look good. It was showers and saunas that didn’t add anything to the bottom line, but were nonetheless essential. And so what happened was very quickly, this gym got into serious trouble because they simply could not sell enough memberships to cover their costs because they couldn’t even fit enough people in a class because their rates were so low that they were confusing this high volume model with this high value model.

Chris (08:28):

So of course, they’re gone now. And you know, there were also a bunch of lawsuits about noise and stuff like that. What you need to understand is that a gym with low rent can charge low rates. A gym with high rent cannot charge low rates, or even the same rates as all the other gyms in town. If I’m in a small town, 60,000 people, and there are three gyms that look exactly the same. Let’s say that they’re all like CrossFit gyms and one gym is downtown. And two are in the outskirts. The gym that’s downtown is going to struggle because they are going to be paying way more in expenses. They’re probably not gonna have as much space, which means the high volume model is not going to work for them. And that margin is just going to shrink. Now, often the owner put that gym because they thought, well, marketing’s gonna be easy.

Chris (09:17):

I just hang a sign. There’s lots of people walking by. It’s convenient to their home or their work or whatever, but they’re not running a high volume model. And so they struggle. Instead, what they need to do is run a high value model, which requires less space, requires more one on one attention for the client and is worth paying more for, because of convenience, speed, and attention. So what we see in the data set is this, if you’re renting a retail space and you’re running a high volume model, you’re just running group classes, you’re trying to fit 15 people in or to 30 people in, or whatever. And you’re renting that retail space because you’re close to a lot of people. You’re going to have a very small profit margin. If at all. You might even struggle. If you’re running retail area fitness and you’re running a high value model, one-on-one training or small group training priced much higher, you’re probably going to do well.

Chris (10:21):

And there’s a number of examples of this even within Two-Brain where you’ve got a personal training studio with several trainers going coaching, you know, small groups of two to three people in a highly retail area, they don’t need more than 150 clients. They don’t need to run big classes. They don’t need, you know, seven bench coaches. These people are doing really, really well in the high end retail areas. If your goal is to run big classes of 30 people and have 300 clients, your best margin is actually in a lower rent area. That’s going to make marketing harder of course. Everything about the high volume model is tougher because you’ve got more churn. You’ve got more bench coaches who are always going in and out. You’ve gotta constantly be marketing to get more and more clients. And because you can’t really afford high end rent, you know, you’ve gotta be kind of outta the way.

Chris (11:16):

So you’re not as convenient either. If it sounds like I’m advocating more for a high value model, I usually am anyway. So take that with a grain of salt. The people who are at one end of the spectrum or the other generally do the best. So if you are running a high volume model of classes, but paying cheap rent, you could probably get away with a pretty good profit margin. If you’re running a low volume, you high value model, but paying more expensive rent, you can probably do well in a higher end retail location. But if you’re in the middle, meaning that you don’t understand your model, or you’re trying to reverse the models and run high volume business in a high value location or a high value business in a low value location, that’s when you’re gonna struggle. And the key is to understand who your best clients are and what your model should be.

Mike (12:09):

Two-Brain Radio airs twice a week and features all info you need to run a successful fitness business. Subscribe so you don’t miss a show. Now here’s Coop one more time.

Chris (12:19):

Thanks for listening to Two-Brain Radio. If you aren’t in the Gym Owners United group on Facebook, this is my personal invitation to join. It’s the only public Facebook group that I participate in. And I’m there all the time with tips, tactics, and free resources. I’d love to network with you and help you grow your business. Join Gym Owners United on Facebook.

 

Thanks for listening!

On Monday, Two-Brain Radio presents marketing tips and success stories. Chris Cooper delivers the best of the business world on Two-Brain Radio every Thursday. 

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