I don’t often tell someone NOT to open a gym, but I did last month.
James coaches at a box now. He doesn’t have many classes. But the owner lets him keep 100% of the personal training revenue he generates, and he does a dozen PT sessions every week, netting him around $3600 per month.
He wants to open his own gym. But he didn’t realize that he’s probably making more than the owner; that he has zero expenses, zero stress, and all the time he wants. When I asked him for an income goal, he said “sixty thousand dollars a year.” He could do that one of two ways:
- Open a gym, take the largest loan of his life, stress over client recruitment, stress over injury, work from 5am-9pm for a year or so, fight with his wife, drive himself crazy with programming, and find an unsympathetic ear in an online Facebook group. To profit $3600 per month, he’ll have to generate over $11,000 in gross revenue, minimum. Then he’ll have to find other coaches to help him; keep them inspired; try to track the Kill Cliff purchases out of the fridge, and then fight distraction through his workouts. OR…
- Get three more clients and stay where he is.
The owner of his gym is crazy for giving him 100% of personal training revenue. After all, the owner is in the fitness business, not just the group training business. Turning over an important revenue stream is like letting a hot dog vendor push his cart around inside your restaurant.
But the owner wasn’t on the phone; the trainer was. So my advice was “Don’t quit your day job.”
What if the owner had been on the phone? Because if you’re reading this, you’re probably the owner of a gym, or the founder of a service business. Here’s what we teach you in the Incubator.
First, cover your costs. You should be able to cover ALL of your fixed costs with 22% of your gross revenue. That’s your rent, your power, your internet bill…any recurring bill that doesn’t go away.
Second, carve out a 33% gross profit margin to pay yourself. If you’re not getting paid, you don’t have a business. You have a platform for volunteerism.
Finally, pay your staff. They get the largest chunk of your revenue, because they’re they most important part of your business. 44% should cover all staff expenses (wages and taxes.)
This is where the 4/9 model (44%) came from. But the math is less important than the principle: you are not the same as your staff. You are separated by a wide chasm: you did something they never will. You took a risk. What’s that risk worth?
When I was getting my start in personal training, I took my clients to a local hardcore gym. The owner let me train them for free, as long as they bought a membership. Before the gym went bankrupt, I was making over $1000 every week. It cost me $100,000 to buy that same job back by opening my own gym later.
What would it cost you to build a business that will pay you $1000 per week? THAT is what your risk is worth. It’s the one thing–the BIG thing–that separates you, the owner, from your staff.
You took the risk. They didn’t. Don’t undervalue yourself.