Financial Numbers Every Gym Owner Needs To Know

By Krystle Orlando | September 25, 2019 | Gym Management | 0 Comments

When it comes to owning and operating a gym, there are countless metrics you could track to gain valuable business insights. However, there are eight financial numbers every gym owner should know and always be paying attention to. Let’s call these numbers “the basics.”

To help ensure that your business stays on track, take the time to familiarize yourself with these basic data points outlined below. It’s important to note that while some of these metrics can be tracked in your gym management software, others might require the assistance of an accountant or accounting software.

Note to new gym owners: Before you open your doors you will need to figure out how much you will need to charge members in order to keep your gym in business long-term. In other words, your membership price needs to be high enough that you can pay your bills. New gym owners can use this article as a guide to effectively set your membership prices.

1. Expenses

What is it? Expenses are your total outflow or the amount of money that you owe each month (including the cost of labor) in order to keep your business running. Expenses are sometimes also referred to as overhead, costs or even debt.

For new gym owners, there may also be two categories of expenses: startup expenses and ongoing operating expenses. Startup expenses might include real estate and improvements, equipment, furniture, and signage to name a few examples.

Additionally, your expenses are made up of Fixed Costs, i.e. those that stay the same such as rent, Variable Costs that fluctuate depending on your business’ activity such as advertising or equipment repair, and Semi-Variable Costs that fluctuate more slightly such as electricity bills, taxes, payroll, etc.

Why is it important? It’s important to track how much and when your expense payments are to be made as well as how that lines up with your Income (see below). The goal for every gym owner should be to lower debt while increasing Revenue (see below) to make sure that you can afford to stay in business. Technically, you will not be able to eliminate debt entirely while operating as you will always owe on your overhead expenses such as rent, payroll, electricity, and water bills each month.

How do I calculate it?

Fixed Costs + Variable Costs + Semi Variable Costs = Expenses

Example:
Rent: $2,000/Month
Utilities: $400/Month
Equipment: $1,000/Month
Payroll: $2,500/Month
Insurance: $200/Month
Software: $100/Month
Total Month’s Expenses = $6,200

How do I track it? Overhead costs can be tracked with the assistance of an accountant or using accounting software such as QuickBooks.

2. Revenue

What is it? Revenue is the sum of all the money that your business receives from the sale of services and products. Revenue is also sometimes referred to as “Total Revenue” when you have more than one source of revenue, often referred to as revenue streams. For example, many gym owners include the sale of additional services or goods beyond gym membership such as retail items in order to grow revenue. If you have multiple revenue streams you can break down your sources of revenue into categories for tracking purposes such as:

• Membership Revenue
• Personal Training Revenue
• Drop-In Revenue
• Retail/Merchandise Revenue
• Events Revenue

Knowing your revenue is a necessary basic, however, you can also get very granular with tracking revenue based on what your goals are. Gross Revenue is the sum of all revenue captured by cash, credit card, and ACH payments plus adjustments. For example, when you refund a member and the processing fees are returned to you and listed as adjustments. Net Revenue refers to what remains after any fees and refunds you’ve issued are subtracted from your gross revenue.

Why is it important? You need to understand your revenue so that you can calculate your Profit (see below) in order to determine whether or not your business is profitable. Furthermore, knowing the breakdown of where your revenue is being generated from is crucial to understanding the areas of success and failure within your business.

How do I calculate it?

The Sum of All Revenue Streams = Total Revenue

Gross Revenue — Fees/Refunds = Net Revenue

Example:
Membership Revenue: $32,504.23/Month
Personal Training Revenue: $2,000.00/Month
Drop-In Revenue: $1,645.00/Month
Retail/Merchandise Revenue: $2,365.87/Month
Events Revenue: $0/Month
Total Month’s Revenue = $38,515.10

Cash ($199) + $38,151.10 (Credit Card) + $165.00 (ACH) + $91.90 (Adjustments) = $38,607 Gross Revenue

$38,607 (Gross Revenue) — $4,291.62 (Fees/Refunds) = $34,315.38 Net Revenue

How do I track it? You can track your revenue in Triib gym management software via the Admin Dashboard Month Overview, Sales History, or in the Income Summary Report. The latter of which breaks revenue down at a high level by memberships and products to see which are memberships types and what products are generating the bulk of the revenue.-

3. Profit

What is it? Profit, typically referred to as net profit or your bottom line, is the amount of income that remains after accounting for all expenses and debts. In other words, your profit is your financial gain or the difference between the amount earned and the amount spent while operating your business. Just like revenue, knowing your profit (if there is one) is a necessary basic that you can also take a deep dive into.

Your Profit Margin is the amount by which revenue from sales exceeds costs in a business. To calculate this number, you’ll need to find your Gross Profit or the difference between revenue and cost. To find the profit margin divide gross profit by the revenue. To make the profit margin a percentage, simply multiply the result by 100.

Why is it important? Every business owner needs to know if their business is profitable or not. If you have a profit, congrats — that means your business is profitable! If you make a net profit you should consider saving it for future business expenses. Further, once your profit margin is high enough you can afford to reinvest in and grow your gym by hiring additional coaches or buying more equipment. If you’re not profitable yet you may want to consider exploring additional revenue streams to save your business.

How do I calculate it?

Net Revenue — Expenses = Profit

Profit / Net Revenue= Profit Margin

Profit Margin x 100 = Profit Margin Percentage

Example: $34,315.38 (Net Revenue) — $6,200 (Expenses) = $28,115.38 Profit

$28,115.38 (Profit) / $34,315.38 (Net Revenue) = .82 (x 100) = 82% Profit Margin

How do I track it? Profit from product sales as well as net profit can be calculated under the Product Sales Report in Triib. You can further understand your profit by combining the information found in the Income Summary Report in Triib combined with accounting software.

4. Average Revenue Per Member

What is it? Average Revenue Per Member (ARM) is your total income divided by your total number of members. This metric explains the dollar value of your members to your business.

Why is it important? Knowing your average revenue per member gives you direction on setting effective membership pricing and promotions. Additionally, it gives you insight into your retention efforts while also understanding members gained and lost. Further, it tells you how many new members you will need to bring on in order to reach your revenue goals or otherwise to seek additional revenue streams. For example, if your membership rate is $200/month, but you’re only bringing in $170 per member then you may want to investigate this metric further. Keep in mind, however, that although the industry suggests this metric be at $200/member your gym can still be profitable with a lower ARM.

Your average revenue per member is typically based on your active member count versus inactive members. So you will want to sort this out by asking yourself a few questions. For example, do you have multiple year-paid-in-full memberships, tiered pricing with 200.00 as the highest plan? What’s the average of your membership rates? Also, do you have attendance packs purchased in prior months or even years counted in this active member count? All of these things can affect your revenue per member data.

How do I calculate it?

Total Revenue/# of Members = Average Revenue Per Member

Example: $34,315.38 (Net Revenue) / 150 (Active Members) = $228.77 Average Revenue Per Member

How do I track it? To find this information you can pull an Average Revenue Per Member Report in Triib or run a Monthly Value Report via the Monthly Overview Dashboard. Remember, this number is based on your “active member” count. In Triib active members are those paying with a current plan or an attendance pack/personal training pack listed on your dashboard as an “active member.” This does not include members who have simply purchased memberships or attendance packs who are not currently attending your gym.

If for some reason you want to include any inactive members, or members who are not tracked in your system such as bartering arrangements as well as lifetime or grandfathered members, or anyone using your gym discounted or for free, etc. you can calculate that manually.

If you notice a discrepancy with your Average Revenue Per Member, you can look at the Discount Breakdown Report in Triib, or the Membership Type Breakdown Report which will help you understand the above example — why you might be losing money per member. Keep in mind that most gyms do not have one rate, which is important when looking at this metric. For example, maybe you mostly sell 3-class-per-week memberships versus unlimited memberships.

5. Length of Engagement

What is it? The length of time on average that a client stays with your business. This is also sometimes referred to as Average Client Lifespan. Note: new gyms may not have this data.

Why is it important? You need to know your Length of Engagement so you can see the big picture of how long people are sticking around! This will allow you to make long-term budgets as well as prepare for any costs associated with attracting new members to your gym.

How do I calculate it?

Total Days of Engagement/Total Number of Members = Length of Engagement

Example: If you have 2 members and member A is an active member for 90 days and member B is an active member for 15 days, your Average LEG would be 52.5 days.

How do I track it? You can track Length of Engagement via the Length of Engagement Report in Triib. This metric, similar to Average Revenue Per Member, will vary depending on your goals due to your active member count. Additionally, you can gain more insight into members lost via the Members Lost Report in Triib.

6. Total Member Value

What is it? The dollar amount that members have spent to date as it relates to the amount of time they have been a member.

Why is it important? Total Member Value will allow you to budget for retention and marketing with the data necessary to make a solid decision. Don’t forget to consider the profit margin here, it’s important.

How do I calculate it? There are two ways to calculate this metric depending on if you want to track days or months:

Option #1: Average Revenue Per Member (Shown monthly but needs to be converted to days by /~30) Average Member Lifespan (shown in days) = Total Member Value

Option #2: Average Revenue Per Member (Shown monthly) Average Member Lifespan (shown in days needs to be converted to days by /~30) = Total Member Value

Example: Option #1: Average Revenue Per Member ($228/30=$7.6/day) Average Member Lifespan (315) = Total Member Value = $7.6x315

Option #2: Average Revenue Per Member ($228) Average Member Lifespan (315day/30 = 10.5months) = Total Member Value = $228x10.5

How do I track it? You can track your Total Member Value via the Member Value Report in Triib.

7. Average Attendance

What is it? How often people attend your classes.

Why is it important? This information allows you to make informed decisions regarding your schedule such as popular and unpopular class times.

How do I calculate it?

Total Attendance Days/Total Number of Classes = Average Attendance

Example: 365 (Total Attendance Days) / 5 (Total Number of Classes) = 73 Average Attendance

How do I track it? You can report on total attendance/total number of classes over the month/week/day inside Triib via the Average Attendance Report under Admin Dashboard > Month Overview.

8. Cash Flow

What is it? Last but certainly not least, Cash Flow is the money that is moving in and out of your business in a given amount of time. This is cash coming in from members who are buying your membership packages, services, products, etc. It’s important to keep in mind that if your members don’t pay at the time of purchase, some of your cash flow will be coming from either collections or accounts receivable. As such, it’s important to also note that cash flow is not the same as profit. Just because a business is profitable doesn’t necessarily mean it’s got sufficient cash flow to sustain itself.

Why is it important? If more money is coming in than is going out, you are in a “positive cash flow” situation which means that you have enough money to pay your bills. If the opposite is true then you are in debt. As a general rule of thumb, you want your cash flow for the year to be at least double what your expenses were. This means that you can afford to pay your liabilities twice. The higher your cash flow ratio to expenses is to your liabilities, the better. Dealing with cash flow is most difficult when you are starting a business as there are lots of upfront startup costs. Therefore, you may need some other temporary resources, such as a line of credit, to pay your bills until you have established a positive cash flow situation.

How do I calculate it?

Profit — Operating Expenses = Cash Flow

Example: $28,115.38 (Profit) — $6,200 (Operating Expenses) = $21,915.38 Cash Flow

How do I track it? If you are tracking all revenue and expenses in accounting software, such as QuickBooks, then you should be able to track your month to month and year-end cash flow via QuickBooks inside Monthly Reconciliation. Otherwise, an accountant can help you track this information as well.

Once you get the hang of tracking these basic metrics, correlations will begin to emerge that will help you understand how to make the necessary assumptions and projections in order to run your business successfully. For example, how does the length of engagement influence (insert example here)

Remember these numbers are just the basics. There are plenty of other really important performance indicators to give you an insight into the health of your business. Be sure to stay on top of the health of your business by choosing the right gym management software in order to help you calculate and track these financial numbers to grow your gym.