Over the past decade, Americans have become increasingly health-conscious both physically and mentally. Whether that’s through their eating, their daily activities, or their mindset, Americans are placing a new emphasis on wellness and their lifestyle. In fact, since 2008 gym membership across the United States has exploded. In the decade from 2008 to 2018, gym membership has grown an impressive 37.1% and the number of club-goers has grown by 34%. And this only scratches the surface, because the fitness industry as a whole has also exploded, with Americans spending more money than ever before on products like energy bars, energy drinks, health supplements, and more. Meanwhile, cardio, CrossFit, and other workout programs have gained widespread popularity.
As part of this, we have seen a widespread diversification of fitness options for Americans, with different price points for different income levels. In particular, there is now a wide array of fitness center and club options, with some offering full-service gyms with pools, spas, and a host of amenities and others simply offering access to a wide array of gym equipment.
In an effort to take advantage of this, many small business owners across the United States have become increasingly interested what it takes to open a gym of their own. In this post, we’ll cover the initial costs associated with opening and operating your own gym, whether as a stand-alone or a branch of a gym franchise (i.e. Planet Fitness or Gold’s Gym).
Health Clubs vs Gyms: Choosing the Type of Gym
Before breaking down the costs of a commercial gym, it is important to recognize that there are different types of gyms, some of which would classify as “health clubs”. As such, the costs of gyms can vary widely and drastically. Health clubs tend to be large complexes that, in addition to having a fully stocked gym, have pools, spas, saunas, tennis courts, basketball courts, and other amenities like restaurants, smoothie bars, and even sports shops. These are obviously cost a lot more upfront than a simple gym in a shopping mall that offers a limited array of fitness equipment to members.
As such, while we will break down the typical costs associated with a commercial gym, as a business owner you will have to do your due diligence in planning out your gym carefully, analyzing all of the costs with an eye for detail.
Analyzing Your Target Market
In deciding what type of gym you want to open, you will want to pay close attention to your target market. For example, if you are opening a gym in a low-income area, you definitely wouldn’t want to open an expensive full-service health club featuring a spa and more. Instead, a small gym startup or fitness studio with a low membership fee and an unrestrictive membership contract would be a far better decision.
Market research is key in understanding who your clientele will be as well as what they are looking for. As part of opening any business, we recommend building out a pitch deck that incorporates market research, a business model, key data points and metrics, and a business plan into one digestible presentation. Not only will this help you in your loan application process (or with getting investors if you want to go that route) but it will also help you clarify whether or not your business idea is viable given the market conditions.
Breaking Down the Costs of a Commercial Gym
Just like any business, opening a new gym comes with both one-time costs and recurring operational costs, as well as fixed and variable costs within these categories. We’ll break down some of the various costs you can expect when moving forward with a health club or gym start-up. As a preliminary number, a modest gym costs, on average, anywhere from $200,000 to $400,000 to start, and there are of course annual costs thereafter.
Initial Investment and One-Time Costs
The biggest barrier to entry with new gyms is the initial investment and upfront costs associated with starting them. The cost of gym equipment is not cheap, and if you are opening a full-scale health club, you’ll have to build a pool, basketball courts, a tennis court, and more.
For the sake of this article, we’ll be focusing mostly on small gym startups as opposed to full-scale health clubs, since this is typically a far more realistic option for small business owners who have limited access to capital.
Paying for a Location
The cost of a location for your gym will be dependent mostly on size and location, however, it can also change based on whether you decide to buy the building outright or lease the space. If you decide to buy a commercial location using a commercial real estate loan, you can expect to pay upwards of $700,000 for a space. With a 20% downpayment, you’ll be looking at $140,000 right out the gate.
This is where the costs will continue to rack up. In order to have a successful gym, you will need a wide array of fitness equipment, including free weights, treadmills, lifting racks, floor mats, and more. Indeed, for a fully-equipped commercial gym, you can expect to spend in excess of $100,000 on gym equipment.
Fortunately, over the last few decades, loans have become increasingly specialized with new options for specific intended purposes. This has helped lower interest rates since it reduces overall lender risk. In the case of gym equipment, you can get a small business equipment loan. What is nice about equipment loans is that they use the equipment itself as collateral, so there is less overall risk for the lender and they are easier for small business owners who don’t have a strong financial history to obtain. At Biz2Credit, we work closely with small businesses to help them obtain these loans since we realize how powerful they are in helping business owners build a successful, sustainable, and profitable business.
Licenses and Permits
While the exact licenses and permits you will need will depend upon the rules, regulations, and laws in your state and county, there is no doubt that you will need them. Gyms typically have to fulfill the requirements for health and safety compliance permits, adding one more layer of complexity (as well as cost) to opening a gym. As such, you will need to research the rules in your locality carefully – otherwise, you could open yourself up to financial and legal liabilities. Outside of these, you will also need a business license for your new business. You can also typically expect to spend in excess of $5,000 when all is said and done on licenses and permits.
Building Improvements, Remodeling, and Decor
Odds are whatever space you settle on for your gym will not look exactly like you want it to. As a result, you will probably have to do some extensive remodeling, whether that is building in a locker room, painting all the walls, putting in new flooring, installing floor-to-ceiling mirrors (typically common in commercial gyms), or just adding in some decorations to improve the locations aesthetics. Any way you look at it, odds are you will be putting forward some money to improve the building. As such, you’ll need to plan for related expenses. Of course, the cost of these improvements will be highly variable, since it will be based on what changes you will want to make.
Don’t forget to keep these changes in mind and factor them in when selecting a location. For example, one location might be $10,000 cheaper to buy, but its layout might save you $15,000 in remodeling expenses.
Branded signage is another area where the total expenditure will vary based on how elaborate you want to go. However, this is yet another area where you can expect to incur some costs.
Computers/Tablets for a POS System
Another upfront cost you can expect is for computers and/or tablets to run your POS system (which will most likely be charged monthly). You have to maintain a database of your customers and charge them somehow, and since a POS system is the best way to do it you will need computers and/or tablets (like iPads) to operate it. You can expect to spend around $1,500 on this equipment.
Other Gym Supplies
Outside of the gym equipment itself, you will need other supplies as well. These sort of items include chairs and other furniture, a water fountain, potentially a smoothie bar, and more. Again, this will vary based on what direction you want to go with your gym, but they are costs to keep in mind nonetheless.
Recurring and Operational Costs
Outside of the upfront costs, you will also have to keep in mind all of the recurring and operational costs that go into keeping your gym up and running.
Insurance for gyms is incredibly important. With hundreds of members and workers using and moving heavy equipment, the potential for injury is high. As a result, your liabilities are high as well. In fact, insurance is one of the biggest expenses for gyms, since you will need general liability insurance, workers’ compensation insurance, and more. While the rates will vary based on the size of your gym, the number of members, and other factors, you can expect to shell out at least $12,000 in premiums annually – and they will have to be paid on time monthly so you will definitely need to plan carefully for them. Business insurance is a huge industry with a lot of competitors, so be sure to get a lot of different quotes from different providers.
While water usage at your gym probably won’t be too high, your electricity bill will undoubtedly be through the roof. Gyms tend to be massive energy consumers. With dozens of machines using electricity at once, plus bright gym lights and long hours of operation (many gyms are open 24 hours), it makes sense that gyms incur expensive energy bills. You’ll want to plan carefully for these expenses based on the number of machines you will have running and the size of your location.
Marketing, Advertising, and Promotion
Whether you are posting ads on social media, giving out promotional fliers, or sending out email blasts, marketing, advertising, and promotion is not cheap. If you are opening a gym, you most likely already know that you are entering a competitive industry, so you will need to set yourself apart early on.
If you are opening a branch of a franchise, you can expect the franchisor to do marketing of their own – which you will pay for through your royalty fees. However, this marketing is oftentimes not enough, since they are marketing for the brand or region as a whole, whereas you will want to be driving membership levels for your branch specifically.
Monthly Mortgage or Lease Payments
Depending on what route you went for obtaining a location for your gym, you will also be responsible for paying monthly mortgage or lease payments.
While the computers and tablets needed to operate a POS system are usually a one-time upfront expense, you can expect to pay monthly for the POS system itself. There’s a wide array of POS systems with different functionality levels, so you will want to choose a system carefully. Keep in mind, it’s always better to choose a POS system with extra functionality that you think you may not use than one that is missing some features you think might be helpful in the future. Migrating POS systems can be a real nightmare, so choose one and try to stick with it.
While baseline POS systems will keep track of your gym members, run credit cards, others can monitor and analyze foot traffic, run advanced marketing campaigns, assess your market position, and provide for a myriad of other business needs. There are even specialized gym management software options you can use. Make sure to research the different options carefully.
The size of your gym will determine your labor fees, but you can expect to spend a great deal of money on employees if your gym has personal trainers and other certified professionals. Many gym owners pay to have their staff certified with different fitness-related accreditations. These accreditations can run anywhere from a few hundred dollars to $900 each. As a result, you will want to pay your employees well to try to minimize turnover – you don’t want to be training new people and getting them certified over and over again.
Accreditations available include those from the National Academy of Sports Medicine (NASM), the American Council on Exercise (ACE), the American College of Sports Medicine (ACSM), and the National Strength and Conditioning Association (NSCA).
In addition to these labor fees, you will also have expenditures for supplies that your employees will need, such as cleaning supplies to keep the gym sanitized.
Equipment Maintenance and Repair Expenditures
Like all equipment, gym equipment must be maintained and repaired over time. It’s no secret that gym equipment typically takes a beating with people using the machines for hours on end each and every day. These fees can reach $10,000 or more a year, depending on your luck, so you will want to plan for these expenses carefully.
With the rise in gym membership over the past decade, the fitness industry has become somewhat saturated with new offerings, making it harder for consumers to make choices. Meanwhile, the number of gyms has exploded, taking many markets across the country off the table. However, that does not mean that opening a new gym is not a good idea if you can find the right market and the right business model. With careful planning and consideration, there are still opportunities for opening and running successful gyms.
That said, the startup costs associated with opening a new gym, whether as part of a franchise or as a standalone, are not cheap. So anyone looking to break into the industry will have to be prepared to make significant financial investment upfront – one that will come with considerable risk. However, if you can execute properly, running a gym or health club can provide small business owners with a sustainable and profitable company for years to come in an industry that looks poised to continue to grow at a rapid pace.