FDD Talk 2021: SPENGA 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 SPENGA franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a SPENGA franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a SPENGA franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned SPENGA outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of SPENGA’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• average, median, high, and low number of members for the franchised SPENGA studios through their first 30 days of operation during 2019, 2020, and 2021

• total net cash-in; payroll and payroll-related costs; cost of goods sold; estimated royalty; advertising; rent and occupancy costs, utilities, and other certain operating expenses; and total NCI less total of disclosed costs and expenses for the one affiliate-owned SPENGA studio, which opened in 2015, throughout the 2019 and 2020 calendar years

• total net cash-in generated by the one affiliate-owned SPENGA studio each month throughout the 2019 and 2020 calendar years

• average, median, highest, and lowest total net cash-in generated by the franchised SPENGA studios with presales and without presales during their first calendar year in 2019 and 2020

Section I – Background Information

13 Things You Need to Know About the SPENGA Franchise

Opens Several New Locations

1.  Although the ongoing COVID-19 pandemic caused gyms around the United States to close, SPENGA continued to open new locations. In June 2020, SPENGA announced the opening of a studio in Hilliard, Ohio. Bryan Clark, SPENGA Columbus franchisee, said, “We are excited to bring this amazing workout to Hilliard and be a part of this wonderful community. We can’t wait for our members to fall in love with SPENGA and get the results they want in our beautiful studio surrounded by our team of inspiring instructors!” A small grand opening celebration was held on July 19, 2020.

2.  Near the end of July 2020, SPENGA announced the opening of a new location in Southlake, Texas. Andrea and Brad Bunnett, SPENGA Southlake franchisees, said, “We love the Southlake community and are excited to bring this fantastic workout and beautiful studio fitness experience to the Park Village Shopping Center.”

3.  Following the summer openings, SPENGA added another new studio in October in Pittsford, New York. Brian Bargy and Julie Seymour, SPENGA Pittsford franchisees, said, “We are excited to bring this amazing workout to Rochester and to be a part of the awesome Pittsford Plaza community. Not only will you transform your body, you will create a new network of like-minded, supportive friends. No matter your fitness level, it’s You vs You!”

Seminole, Florida Location Becomes First Certified Pure Air Fitness Studio in the World

4.  In mid-November 2020, Pure Air Control Services announced that SPENGA of Seminole, Florida had become the first Certified Pure Air Fitness Studio in the world. SPENGA of Seminole, Florida closed two days before the statewide mandate, then it opened 66 days later at 50% capacity. The business wanted to create a safer environment for its staff and members, so it contacted Pure Air Control Services which implemented its healthy building program in the facility.

5.  SPENGA franchisee Dan Foster said, “Becoming a Certified Pure Air Indoor Environment has given our members the confidence to come back in for classes. It’s really provided the bounce we need to get back to business and has given us an edge over the competition.”

6.  Pure Air Indoor Environment is a combination of services. Each service improves and maintains optimal indoor air quality. The first step in the certification was to clean two rooftop air handling units with the PURE-Steam method. High temperature steam provides thorough disinfection of the RTUs. Then insulation was coated with encapsulating paint as part of the HVAC New Life process. This prevents the spread of fiberglass particles into the building below.

7.  PURE-Decon topical cleaning together with an electrostatic spray method disinfects pathogens. This method goes well beyond CDC recommendations. Next, two needlepoint PURE-Plasma BiPolar Ionizers and two PURE+AeraMax air purifiers were installed to eliminate microbes and particles.

8.  Pure Air Control’s EDLab analyzed samples from coronavirus environmental testing and found no presence of virus RNA. As a result, the studio was verified safe for occupancy.

9.  The last step for certification included the installation of IAQ Guard technology. This system continuously monitors the facility for particles, temperature, rH, CO2, and VOCs. Finally, before entering the studio, members get checked at a touchless temperature detection kiosk.

10.  Alan Wozniak, CEO of Pure Air Control Services, added, “We were honored to help SPENGA achieve their IAQ goals to protect their members and staff. They are an elite fitness studio so becoming certified with our healthy building program speaks volumes of their commitment to the high standards they’ve set for themselves.”

Company History

11.  SPENGA was founded in 2015 by Amy Nielsen and Heather Ruff, with help from Roger McGreal, in Mokena, Illinois. The fitness program developed by Nielsen and Ruff combines spin, strength training, and yoga and the brand’s name is a portmanteau of each of its components. Every SPENGA session is 60 minutes long and consists of 20 minutes of heart-pumping spin, 20 minutes of strength training, and 20 minutes of invigorating yoga.

12.  Both Nielsen and Ruff, who have years of experience in the fitness industry, felt that there weren’t any fitness programs that combined cardiovascular, strength, and flexibility training. The first SPENGA studio was a success and Nielsen and Ruff began franchising later that year. SPENGA’s growth has been slow and steady and there are now locations across several states.

Entrepreneur’s Franchise 500

13.  SPENGA ranked No. 253 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of SPENGA franchise costs, based on Item 7 of the company’s 2021 FDD.

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

• Please click here for detailed information on SPENGA’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  5
• Outlets at the End of the Year:  9
• Net Change:  +4

2019

• Outlets at the Start of the Year:  9
• Outlets at the End of the Year:  22
• Net Change:  +13

2020

• Outlets at the Start of the Year:  22
• Outlets at the End of the Year:  42
• Net Change:  +20

Company-Owned

2018

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2019

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2020

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• This Item sets forth certain historical income and expense information for one affiliate-owned Studio that opened in 2015 (the “Affiliate Studio”), as well as 42 franchised Studios (the “Franchised Studios”) that were open and operating as of December 31, 2020, and 5 franchised Studios that opened in 2021 (“2021 Studios”).

• Part 1 of this Item discloses the average, median, high, and low number of Members for the Franchised Studios through their first 30 days of operation. Part 1 excludes 9 Franchised Studios that opened prior to the 2019 calendar year, and the Affiliate Studio.

• Part 2 of this Item discloses the total Net Cash-In (“NCI”) generated, as well as certain costs and operating expenses incurred, by the Affiliate Studio throughout the 2019 and 2020 calendar years. SPENGA excluded the Franchised Studios from Part 2 because it did not receive operating costs and expense data from its franchise owners for the 2019 and 2020 calendar years in the required form and format.

• Part 3 of this Item discloses the total NCI generated by the Affiliate Studio each month throughout the 2019 and 2020 calendar years.

• Part 4 of this Item discloses the average, median, high, and low NCI generated by the Franchised Studios during their first calendar year in 2019 and 2020. Part 3 excludes (i) 11 Franchised Studios that opened in 2019 and have not operated for an entire calendar year, (ii) 1 Franchised Studio that does not have 7,500 Qualifying Households that have an annual income of at least $75,000 in its Designated Territory, and (iii) 3 Franchised Studios that were closed for a majority of the 2020 calendar year.

• SPENGA has not independently audited or verified the data below that was reported by the owners of the Affiliate Studio and Franchised Studios.

• During the 2020 calendar year, Franchised Studios received SBA deferment. Studios worked with their landlords to defer and/or abate rent payments. Studios took advantage of government programs; PPP Loans, EIDL, and grants. Vendors supported the studios with deferring and/or abating payments.

• Some outlets have sold or earned this amount. Your individual results may differ. There is no assurance you will sell or earn as much.

Part 1 – Average, Median, High, and Low Members for Franchised Studios and 2021 Studios During Their First 30 Days of Operation During 2019, 2020, and 2021

2019

• Average:  290
• Median:  263
• High:  450
• Low:  186

2020

• Average:  206
• Median:  205
• High:  359
• Low:  106

2021

• Average:  222
• Median:  214
• High:  289
• Low:  181

• A “Member” has a monthly membership dues payment that is processed by an auto draft on a monthly basis or a member pays in full for a package option.

• All of the Franchised Studios listed in the chart above complied with SPENGA’s presales plan and Pre-Opening Activity Expenses as further detailed in SPENGA’s Operations Manual and Item 7 of the Disclosure Document.

• In 2020 and 2021, the Franchised Studios were required to conduct the presales process virtually due to COVID-19.

Part 2 – Total Net Cash-In (“NCI”) Generated By, As Well As Certain Costs and Operating Expenses Incurred By, the Affiliate Studio Over the 2019 and 2020 Calendar Years

2019

Total NCI:  $727,380.58 (100.0%)

Disclosed Costs and Expenses

• Payroll and Payroll Related Costs:  $185,487.76 (25.5%)
• Cost of Goods Sold:  $18,466.90 (2.5%)
• Estimated Royalty:  $50,916.94 (7%)
• Advertising:  $46,533.50 (6%)
• Rent and Occupancy Costs, Utilities, and Other Certain Operating Expenses:  $124,996.32 (17%)
• Total of Disclosed Costs and Expenses Above:  $426,401.12 (58.6%)

Total NCI Less Total of Disclosed Costs and Expenses Above:  $300,979.46 (41%)

2020

Total NCI:  $473,936.86 (100.0%)

Disclosed Costs and Expenses

• Payroll and Payroll Related Costs:  $151,704.55 (32.01%)
• Cost of Goods Sold:  $17,967.03 (3.8%)
• Estimated Royalty:  $33,175.58 (7%)
• Advertising:  $35,114.31 (7.4%)
• Rent and Occupancy Costs, Utilities, and Other Certain Operating Expenses:  $112,752.93 (23.79%)
• Total of Disclosed Costs and Expenses Above:  $350,714.40 (74%)

Total NCI Less Total of Disclosed Costs and Expenses Above:  $123,222.46 (26%)

• Affiliate Studio closed due to COVID-19 on March 21, 2020. The Affiliate Studio was able to reopen on June 29, 2020 with limited capacity and adhering to local six feet social distancing requirements. Due to local guidelines, on November 20, 2020, the Affiliate Studio could no longer have instructor led sessions/group classes. On January 21, 2021, the Affiliate Studio was able to resume instructor led sessions and is still under capacity limits and adhering to social distancing guidelines.

• “Total NCI” in Part 2 above means all cash collected by the Studio at issue over the applicable calendar year and has the same definition that SPENGA discloses for “Net Cash-In” or NCI in Item 6 of the Disclosure Document.

• “Payroll and Payroll-Related Costs” in Part 2 means all wages and other compensation paid to instructors and other personnel of the Affiliate Studio, as well as all payroll taxes and amounts paid to the Affiliate Studio’s payroll provider, over each calendar year.

• This estimate includes management pay, but does not include any compensation for: (i) a Designated Manager because SPENGA’s standard franchise offering assumes that you will manage the day-to-day operations of the Studio directly; or (ii) you or any other owner of the Franchised Business.

• “Cost of Goods Sold” in Part 2 means the amount that the Affiliate Studio expended on the merchandise, apparel, and other inventory over each calendar year as necessary to provide the Approved Products and Approved Services from the Affiliate Studio.

• “Estimated Royalty” is being disclosed in Part 2 to comply with applicable franchise disclosure laws imposed by certain regulatory authorities, including the recent commentary enacted by the NASAA in 2017.

• While the Affiliate Location does not have a Franchise Agreement with SPENGA and was not otherwise required to pay SPENGA a Royalty over each calendar year, the Estimated Royalty figure is designed to show you what the Affiliate would have had to pay SPENGA based on the NCI of the Affiliate Location over each calendar year, if the Affiliate Location was subject to SPENGA’s current form of Franchise Agreement.

• To be clear, this is not a projection but is instead an estimate that SPENGA is disclosing here in order to provide you with a representative idea of what a new franchisee would be required to pay SPENGA in Royalties under its current Franchise Agreement.

• “Advertising Expense” means the amount that Affiliate expended on advertising and marketing to promote the Affiliate Business over each calendar year, including Internet/digital advertising, local events and sponsorships, mailers, and promotional items.

• “Rent and Occupancy Costs, Utilities, and Certain Other Operating Expenses” means: (i) the total rent, CAM, and other payments made to the lessor of the Premises of the Affiliate Location in connection with the governing lease for that Premises, (ii) the total amount that SPENGA’s Affiliate paid for utilities over the Measurement Period in connection with the Affiliate Location operations, (iii) other operational expenses that Affiliate incurred in the operation of the Affiliate Location such as banking-related fees, merchant processing fees, insurance, office supplies and other supplies, telephone, and professional fees, over each calendar year.

• This amount does not include the amounts that SPENGA’s Affiliate incurred over each calendar year on (a) any of the other specified cost and expense items specifically referred to in Part 2 above, or (b) repairs and maintenance on equipment used at the Studio, charitable contributions, and other nominal expenses not listed in the Explanatory Note immediately above.

• “Total of Disclosed Costs and Expenses Above” is calculated by taking the sum of the amounts that SPENGA’s Affiliate expended on the operating costs and expense categories described in the Explanatory Notes of this Item above.

• “Total NCI Less Total of Disclosed Costs and Expenses Above” in Part 2 is calculated by subtracting the “Total of Disclosed Costs and Expenses Above” from the “Total NCI”.

• The “Percentage of Total NCI” for each line item in Part 2 is calculated by dividing the amount of the line item by the Total NCI over each calendar year.

Part 3 – Total NCI Generated by the Affiliate Studio Each Month Over the 2019 and 2020 Calendar Years

2019

• January:  $52,916.00
• February:  $60,274.00
• March:  $62,895.00
• April:  $59,039.00
• May:  $58,832.00
• June:  $59,540.00
• July:  $60,169.00
• August:  $63,537.50
• September:  $62,999.40
• October:  $65,500.43
• November:  $58,799.25
• December:  $62,877.39
• Total:  $727,378.97

2020

• January:  $58,641.56
• February:  $62,558.17
• March:  $42,363.03
• April:  $16,435.94
• May:  $11,232.20
• June:  $19,977.55
• July:  $48,308.93
• August:  $45,537.77
• September:  $44,557.68
• October:  $47,264.12
• November:  $39,640.15
• December:  $37,143.77
• Total:  $473,660.87

• The Affiliate Studio closed due to COVID-19 on March 21, 2020. The Affiliate Studio was able to reopen on June 29, 2020 with limited capacity and adhering to local six feet social distancing requirements. Due to local guidelines, on November 20, 2020, the Affiliate Studio could no longer have instructor led sessions/group classes. On January 21, 2021, the Affiliate Studio was able to resume instructor led sessions and is still under capacity limits and adhering to social distancing guidelines.

• “Total NCI” in Part 3 above means all cash collected by the Studio at issue over the applicable calendar year and has the same definition that SPENGA discloses for “Net Cash In” or “NCI” in Item 6 of the Disclosure Document.

Part 4 – Average and Median NCI Generated by the Franchised Studios With Presales and Franchised Studios Without Presales

2019

Total NCI in First Calendar Year for Franchised Studios With Presales

• Median:  $537,307
• Average:  $530,345
• Highest:  $594,637
• Lowest:  $452,129
• Number and Percent of Studios That Achieved or Exceeded Average:  2/4 (50%)

Total NCI in First Calendar Year for Franchised Studios Without Presales (90-day presale is now required)

• Median:  $419,620
• Average:  $406,292
• Highest:  $481,821
• Lowest:  $325,470
• Number and Percent of Studios That Achieved or Exceeded Average:  3/6 (50%)

2020

Total NCI in First Calendar Year for Franchised Studios With Presales

• Median:  $291,862
• Average:  $321,353
• Highest:  $488,246
• Lowest:  $221,723
• Number and Percent of Studios That Achieved or Exceeded Average:  2/8 (25%)

Total NCI in First Calendar Year for Franchised Studios Without Presales (90-day presale is now required)

• Median:  $213,979
• Average:  $213,979
• Highest:  $241,786
• Lowest:  $186,172
• Number and Percent of Studios That Achieved or Exceeded Average:  1/2 (50%)

• The Franchised Studios in the 2020 chart were open for business as of January 1, 2020 and were forced to close their Studios in March 2020 due to COVID-19. These Franchised Studios were able to reopen in May and June of 2020 with limited capacity and adhering to their state and local social distancing guidelines.

• Franchised Studios with presales were required to comply with SPENGA’s presales plan. The first calendar year for Franchised Studios with presales was the 2019 calendar year.

• All of the Studios listed in Part 4 meet the appropriate number of Qualifying Households in each respective Designated Territory. New franchisees are expected to have the appropriate number of Qualifying Households in each respective Designated Territory.

Key Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️