FDD Talk 2018: Snap Fitness Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Snap Fitness franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Snap Fitness franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Snap Fitness franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Snap Fitness outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Snap Fitness’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• average number of members and memberships for the 589 franchised Snap Fitness Clubs in Rural Markets and the 249 franchised Snap Fitness Clubs in Suburban Markets (separately stated) that were in operation for a period of 24 months or more as of December 31, 2017

• projected revenues, expenses, and cash flow for Snap Fitness Clubs in Rural Markets and Snap Fitness Clubs in Suburban Markets (separately stated) based on 400 members, 550 members, 700 members, and 900 members

• historic member ramp-up (member levels for the 6th month and 12th month of operation) of the 17 franchised Snap Fitness Clubs in Rural Markets and the 11 franchised Snap Fitness Clubs in Suburban Markets (separately stated) that were in operation during the entire time period of January 2016 to August 2017

• personal training revenue for the 163 franchised Snap Fitness Clubs in Rural Markets and the 101 franchised Snap Fitness Clubs in Suburban Markets (separately stated) that operated for a full 24 months as of December 31, 2017 and reported a minimum monthly average of $1,000 in personal training revenue (the level Snap Fitness management estimates represents an active personal training program)

• average percentage change in memberships and total revenue year-over-year for the 191 club transfers during the time period of January 2015 to December 2016, from the first month of club purchase

• average percentage change in memberships and total revenue year-over-year for the 48 clubs that were modernized to reflect Snap Fitness’s current system standards within 12 months following the date of transfer (the “Modernized Clubs”), and the 143 clubs that were not modernized within 12 months following the date of transfer (the “Transfer Only Clubs”) (separately stated)

Section I – Background Information

11 Things You Need to Know About the Snap Fitness Franchise

Unveils New Partnership with Country Singer Tim McGraw

1.  Last August 2017, Snap Fitness announced its new partnership with Tim McGraw, Grammy Award-winning country music icon and acclaimed actor, to create a line of signature fitness clubs. As part of the two-year partnership, McGraw will participate in special fitness activities and help with the development of several custom-designed Snap Fitness gyms called TRU MAV Signature Clubs.

2.  The signature clubs will be customized to reflect McGraw’s straightforward, independent style and hometown values. Plans for the clubs include custom equipment and workout programs based on McGraw’s own workout routines and music.

3.  McGraw said, “Fitness and healthy living are a key part of my music and life. Physical fitness is something I value – it can help you live your best life. Working out becomes a habit when it’s an easy part of everyday life, and that’s why I’m partnering with Snap Fitness. These gyms will help folks who are short on time find their fit. They’re encouraging communities that support people who are working toward their own fitness goals.”

Continues Rapid Global Expansion With Move Into Hong Kong and Taiwan

4.  At the end of October 2017, Snap Fitness signed a master franchise agreement for Hong Kong and Taiwan, which reinforces the brand’s commitment to international growth. Snap Fitness is partnering with experienced business leader Danny Diab, managing director of Hong Kong-based Fitness Brands Limited, to continue its expansion in Asia. At the time of the announcement, Diab’s first Snap Fitness club was set to open in Hong Kong sometime in early 2018.

5.  Diab said, “I have been a part of many exciting opportunities and none have inspired and excited me like this one. I welcome the opportunity to help improve the wellness of the people in Hong Kong and Taiwan. It is rare to find a business that combines a dynamic brand in a fast-growing industry which has at its core the health and well-being of its customers. I am confident that the people in Hong Kong and Taiwan will embrace Snap Fitness and make our brand a part of their lives.”

Launches “Commit to Your Fit” Challenge

6.  At the beginning of 2018, Snap Fitness launched its “Commit to Your Fit” challenge, which reflects the brand’s commitment to members as they pursue their fitness goals in a supportive and results-driven culture. Members are invited to sign up for either a 60-day or 90-day challenge.

7.  They will be asked to fill out a goal guide and with those benchmarks, members will be given exercises, nutrition ideas, motivational quotes, and tips and videos from country music superstar and Snap Fitness partner Tim McGraw. As an extra incentive, members who complete the challenge and share their story with the community will win a chance to meet Tim McGraw and attend a concert with a friend.

8.  Peter Taunton, founder of Snap Fitness and CEO of Lift Brands, said, “We know that members have unique fitness goals. It’s our job to help them make those goals a reality. We think ‘Commit To Your Fit’ will do just that. We provide everything a member needs to see results. Plus, it doesn’t hurt to have Tim McGraw cheering you on.”

Company History

9.  Snap Fitness was founded in 2003 by Peter Taunton in Minnesota. Before starting his own fitness business, Taunton was a professional racquetball player who owned five fitness centers in Minnesota. Taunton began developing the idea for Snap Fitness because he wanted to provide a convenient, results-driven workout alternative to traditional “big box” health clubs.

10.  Snap Fitness locations are open 24/7 and are typically located in residential areas, which makes it easy for anyone to workout at any time. Snap Fitness started franchising in 2004 and has grown to over 1,400 locations in the United States, Canada, Mexico, Australia, New Zealand, India, and the United Kingdom.

Entrepreneur’s Franchise 500

11. Snap Fitness ranked No. 348 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Snap Fitness franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Snap Fitness’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  936
• Outlets at the End of the Year:  930
• Net Change:  -6

2016

• Outlets at the Start of the Year:  930
• Outlets at the End of the Year:  933
• Net Change:  +3

2017

• Outlets at the Start of the Year:  933
• Outlets at the End of the Year:  898
• Net Change:  -35

Company-Owned

2015

• Outlets at the Start of the Year:  128
• Outlets at the End of the Year:  103
• Net Change:  -25

2016

• Outlets at the Start of the Year:  103
• Outlets at the End of the Year:  61
• Net Change:  -42

2017

• Outlets at the Start of the Year:  61
• Outlets at the End of the Year:  35
• Net Change:  -26

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• This financial performance representation is presented in three parts.

• Part 1 includes two separate projected annual cash flow charts based on certain membership levels. One projection is for a club located in a rural or in-town market (a “Rural Market”) and one projection is for a club located in a suburban or metropolitan market (a “Suburban Market”).

• For purposes of this financial performance representation, Snap Fitness relied on the Buxton Urban Density System (“BUDS”) to define a Rural Market and Suburban Market. According to BUDS, a Rural Market includes an average population density of 38,353 or less based on a five mile radius, and a Suburban Market includes an average population density of 160,573 or more based on a five mile radius.

• Part 2 includes certain historical member ramp-up information for clubs that opened during the time period of January 2016 to August 2017. Similar to Part 1, the historical member ramp-up information included in Part 2 is separated to show historical information for clubs in a Rural Market and clubs in a Suburban Market.

• Part 3 includes historical personal training revenue information for clubs located in a Rural Market and a Suburban Market.

• Part 4 includes historic club transfer performance information for those clubs that transferred during the time period of January 2015 to December 2016. Part 4 then presents this historical performance information by clubs that modernized within twelve months of transfer and those clubs that did not modernize or did not complete the modernization within twelve months of transfer.

Part 1 – Projected Annual Cash Flows

• As noted above, this Part 1 includes two projected annual cash flow charts based on certain membership levels. The first projected annual cash flow chart is for a club located in a Rural Market. The second projected annual cash flow chart is for a club located in a Suburban Market.

• The following charts reflect a franchisee’s projected revenues based on 400 members, 550 members, 700 members, and 900 members.

• Snap Fitness based the revenue and expense projections on the experience of its franchised and affiliate-owned Snap Fitness Clubs, and the information Snap Fitness obtains from its designated billing provider.

• In preparing these projections, Snap Fitness assumed that general market conditions will remain stable.

• Annual Membership Operating Revenue:  Based on membership data from Snap Fitness’s authorized billing software, a club will generally have 76% as many memberships as members. In other words, if you have 700 members, on average, you could expect to have approximately 532 memberships.

• Typical monthly membership fees are $34.95 to $44.95 based on single membership types and $54.95 to $84.95 for joint or family membership types. Membership rates vary between clubs.

• You set your own membership prices depending on your club’s competitive landscape and amenity service fees (such as tanning) that are added to a membership (exceptions are for National Accounts and certain promotional programs). Membership rates vary between clubs. For example, you may offer discounts on membership pricing for pre-paid memberships, corporate discount programs, and other special promotions.

• Some insurance or other programs may also involve a flat monthly reimbursement or visit fee based on club usage.

• Under the Franchise Agreement, Snap Fitness has the right in the future to establish maximum or minimum membership rates, subject to applicable law.

• The numbers in the chart are based on a membership rate of $35.68 per month, which is the average membership rate based on the information entered into Snap Fitness’s billing system for the 28 clubs that opened from January 2016 to August 2017. These are the more recently opened clubs that had at least 6 months of operating history by January 31, 2018.

• Of the 589 franchised Snap Fitness Clubs located in a Rural Market that were in operation for a period of 24 months or more as of December 31, 2017, the average and median number of members and memberships during the time period of January 1, 2017 to December 31, 2017 (the “Measurement Period”) are as follows:

Rural Market