Classify the operating costs of the fitness centre

Whether it is an analysis of the budget for the year or an analysis of the budget for the coming period, the owner of the fitness centre is in a position to assess the costs of its activities and above all to understand whether their impact on revenues is proportionate or not.

Independent centre / Fitness Chain

Unlike independent centres, chains have high entry costs but develop greater economies of scale.
Operating costs are those incurred to carry out the typical activity of the company and in the local market which are characterised by the high number of individual centres and not those structured in chains or groups and they almost always coincide with the total costs.

For each independent centre, it is possible to exclude any investments, financial charges and taxes from the income statement, to highlight operating costs as there are no superstructure costs as is the case for chains that have to make assessments and choices on the correct allocation of common items such as administration, marketing and any head office with their managers.

We then analyze the operating costs of the fitness centre and, as we say in technical jargon, we classify them by macro items so that they can be analyzed over time as a whole and measured in terms of incidence on revenues.

The order we choose is not necessarily the correct one, but it is the result of a linear reasoning that, starting from the total revenues generated by subscriptions and accessory services, allows us to establish which gross operating margin our business is able to produce.

Consumptions

We start from direct consumption because they vary according to the number of members and the service offered within the fitness center and therefore in close connection with the economic result. This macro group includes users, i.e. the consumption of electricity, gas, water and telephone and although not totally variable, they grow with the increase in the number of users and the opening hours of the centre.

The cost of utilities is extremely variable depending on the characteristics of the systems, the windows and doors and the dispersion but even more so by the presence and size of departments of the club that typically require greater energy consumption and we are obviously referring to the pool environment rather than the SPA area. There is therefore no absolute value but we can consider that a "totally dry" centre can reach a cost of utilities of less than 50% of what you will have to support a multipurpose centre with a 25 metre swimming pool, aquafitness pool, thermarium with 2 heat stations and hydromassage of 40 square meters (in parallel this centre will be able to sustain an average value by subscription much higher than the centre that water and spa does not offer). Another item that we include in direct consumption is purchases, i.e. expenses incurred to regenerate consumable goods. In this box we put badges for entry, stationery, service materials and everything that must be purchased in increasing quantity with the number of members as well as what will be consumed.

The debate on operating costs

Should the cost of purchasing the classic bag with the centre’s logo on re-registering, end up in marketing since it promotes the brand or is it an initial kit purchase that the centre decides to provide to the member?

If the company contracted to provide the daily cleaning service for the centre does not include sanitising products because they are supplied directly from the centre, should the costs of these products be included in the cleaning costs or again in the purchases?

Once again there is no absolute rule but the meticulous detail of the cost classification criterion by those who are working on this unfortunate task, to ensure that in subsequent moments of analysis the data are comparable and reliable.

Human resources costs

It is a good idea to divide staff categories according to the job.
As in all personal services sectors, it is a major cost factor that needs to be carefully measured in order to be able to intervene if and when possible in its optimisation. It is a good rule to consider the cost of the different human resources employed not in terms of gross but in terms of company cost, i.e. including all the charges borne by the company and it is a value that the consultant of the work usually provides. Let's assume therefore to create a list in which the first items are the company costs of the resources framed by the collective labour agreement and that consequently, except for bonuses or variations during the period, will have a fixed value while for professionals or collaborations characterized by the variable of assignment and therefore of upstream hours, it will be possible to estimate that takes into account the opening hours and services offered. In order to make the classification of costs a useful and comparable tool, the Board is therefore to divide them into categories according to the task performed.

We could envisage:

  • Managers
  • Reception and administration
  • Commercial Department
  • Tools room instructors
  • Group Course Instructors
  • Swimming instructors
  • Other (depending on the services provided in the centre)

The breakdown by categories rather than by classification allows the holder to make an economic assessment of the weight of the different sectors of the centre in relation to the results obtained or expected.

Also in this case we are faced with some decisions regarding which container is the most correct according to the task itself, that is: is the cost incurred to remunerate the personal trainers, who typically receive a percentage of what the customer pays, to be included in the personnel cost container or once again in the purchases considering it a cost of the service sold? Again, there is no absolute rule but it is important to maintain the criterion over time and be careful when measuring the weight of personnel costs as a percentage of revenues.

The last operating cost to be considered is the value of the rental of the structure including any condominium expenses or rental of parking.

At this point it is possible to return to the revenues, or rather, to the value of the centre's production and measure the percentage weight of the different cost containers classified as such, remembering that the result will not be the profit for the year but the gross operating margin (GOP), which coincides with the gross result only if there are no amortisation, depreciation and charges.

If the rule that you need to measure to improve is true, then this can be the first step!

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