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I just got my hands on this P and L of a popular gym franchise that my friend runs. In today's video, I want to show you how much money he makes, how he got this deal, and then ultimately you can decide if this is the type of business that you'd want to run. To start a little backstory, my friend Eric, it's not his real name, but that's what we're going to call him. He bought this gym a few years ago. Prior to that, he worked as a manager, personal trainer in the business. But the gym was losing money. It couldn't make any money. And the owner was like, I'm done. Screw it. And I guess he told his employees that he was looking to get out. So my friend Eric, his sister, they put together the money and the resources to buy this gym. But the key is they didn't actually have to go to a bank because the franchisee seller financed his business. To my friend Eric, he said, you don't have to go to the bank. I'll be the bank. Just make a down payment, pay me every month, and then the thing is yours. So that's exactly what he did for this P and L. When you get these things and a lot of times when you're looking at them, you there's tons and tons of lines, right? There's tons of little details. Some of these line items have, you know, a grand total of like a hundred and a hundred dollars, three hundred dollars. And it doesn't really help us when we're actually trying to kind of dive into the business model. So I like to group things together. I like them to make them simple so we can understand it. I summarize a lot of that data from that big P and L here, and we're kind of break this down and go from there. The core of this business is memberships in the last seven months. Because the P and L I have is for seven months, it's January through July, he did over over $386,000 of recurring income. Now in his business, he has about a thousand members. And so each member is paying him roughly divided by seven, about $52 on average per month for the gym membership. He has told me that his pricing model for any new members starting is 2999 BI weekly. No. So he does this bi weekly plan because it allows them to get one extra charge through the course of the year versus monthly. And so that was one of the ways that he increased revenue is he simplified his pricing. The old owner used to have 6 month, 12 month, 18, 24 months. He had all these different contracts, all these different pricing plans. And he said, I'm going to keep it really simple. We have one plan, do you want it or not? That's what he did. And then the other big aspect of this business is personal training, right? So you get memberships, you go to the gym and then they have personal trainers there who can work with you one on one. And now he had background as one of these personal trainers. So he obviously knew the business, he knew what good training was, he knew it wasn't. And it was a big focus for him was to hire better trainers and to the really push the benefits to the members. His personal training membership is a huge part of his total income. And so as we look forward here, in seven months he's doing about $622,000 of revenue. And of that, let's see here, he's got 60% is the membership income and then 37% is the training income, which is a nice percentage. And then 25,000, that's others who sells merchandise, they do this thing called an enhancement fee, I think it's called, where every member gets charged like 20 bucks two times a year. That money goes into a big fund which then helps pay for new equipment. So it's a way of like self funding the upgrades, which is really cool. In his business, one of the big costs is wages. So he spends about $152,000 through seven months, keep in mind, seven months here on wages. Now those wages go to the personal trainers and they also go to his front staff, people like manning the counter, trying to sell people memberships and any other like admin staff that he has and then payroll taxes, which is roughly 10% or so. The next big expense in the gym business is rent. In a smaller town, rent's not a crazy number. So, so if you look so 61,000, so divided by 7 times 12, so he's paying about almost $9,000 a month. So it's called a hundred thousand dollars a year for his space. But rent is where people can get totally crushed in the gym business. Because you could rent this big facility and if you can't fill it up, then sort of pay rent every month. And I'm going to show you exactly what that looks like in a little bit when we start playing with these numbers. Then utilities, right? The lights have to be on, the heat has to be working. This is a 24 hour business gym. And so utilities are going to be running either way. Now we get to the franchise fees so in the business he has two fees. One of them is the royalty that he pays to the franchisor and then he has some other franchise related fees for like software and key fobs and some other things. A lot of franchises charge a percentage of sales as their fees. So then the more revenue you do, the bigger number you pay. But his franchise, the one that he's part of, doesn't do that. They have a fixed fee model, which means they just pay a fixed fee every single month. So, so whether you're, you do a little revenue, a lot of revenue, it doesn't really matter. I think he pays around 7:50amonth. Let's see, so it's 850, but I think he has some other fees in there too. But Anyway, somewhere around 850amonth, that's what he pays to operate this franchise. Some people may say, well, you know, why do I need a gym franchise when I can just open up my own gym? Totally, totally legit. There's a million gyms out there, it's not rocket science to own and run one of them. And so their model is to say, you're right, you could do that. Or for 850 bucks a month you could just, plus the franchise fee up front, you can just join our system and then you get access to all these other members. You get access to our bulk pricing on equipment, our software, our pricing strategies, the community of franchise owners, et cetera. It's a really compelling argument for somebody looking to get into the business of just going with a model that like already works and it's a low cost and doesn't become a big number for him. He's spending more on like software and other fees than royalties, which is kind of funny. So merchant fees and advertising, two other decent expenses for his business. So merchant fees is, you know, his credit card processing. Obviously everybody is going to pay by credit card. He's taking no cash, cash that adds up and does scale. And then advertising, you spent $20,000 per month, so less than $3,000 a month on marketing, advertising, all the like printed promotions. Pretty solid. I think he told me right now it's almost zero because like basically they're putting more the resources into promoting their newest gym, which I'm going to talk about in a minute. And then we have everything else. So I grouped it as everything else just to make it easy. But he spends about $20,000 on cleaning and supplies. Like they have wipes to wipe down equipment. And then Cintas comes to like change out mats and they have towels and you know all that. He has insurance like anybody else. He has equipment repair and maintenance. He has legal costs. He spent $7,000 going to conference merchandise that they're selling telephone repairs and maintenance to the building in general. So all his other expenses. So in total to run this business, he has $377,000 of expenses, leaving him with net operating income of $244,000 through seven months, which is almost $30,000 per month. Pretty, pretty awesome business if you ask me. And so let's dive into these numbers a little bit more. And the bigger question is, what did he do to turn around? So remember, he bought this thing. I want to say it was about three years ago. It was losing money. It was not making any money. I could show you exactly what that looked like then and kind of how these numbers work because this is the challenge in this business where he is one of the top performers. He's in the definitely in the top quartile, if not the top, maybe even 10% of all the fit studios in the country in this brand. And I'm not disclosing the brand purely because he asked me to keep it confidential. Happy to serve the numbers, but not specifics on it. Plus, like, I don't want to make any claims for that brand. This is not to promote them. This is really to promote his story. And what's possible when you own a business and you're in it because he bought a failing franchise. Like this thing was going out of business. It had the numbers were 600 members and it was doing about $35,000 a month in revenue, $240,000 a year. So this was like pre ownership, let's call it. And let's say he budgeted similar numbers. Let's say he bud 25% for payroll and taxes. Let's say rent doesn't change, rent doesn't care what your sales are. Neither do utilities. You could say utilities would be a little lower because maybe you don't have as many members there. But honestly that's probably like not the case and probably should be that you're still gonna have your franchise fee. Remember, this is a flat royalty model. Doesn't matter what they are. Some of his other franchise fees related to key fobs and other usage would be lower because he didn't, you know, wouldn't have as much. Merchant fees would be lower, but at the same percentage. Advertising. Yeah, maybe you're spending less on advertising because you don't have as much to give then all these other expenses. He still has to clean the place. Whether you have three people in there or 30, you still have to clean it. You're still going to have insurance, things are still going to break. Maybe not as much. Maybe you could say, hey, maybe only spend 6,000 instead of nine. And once again, I don't have his exact P and L from before. This is only his current one. Just making some assumptions here, whatever. So all in, you can see that the business is not making money. $7,000 loss, losing $1,000 a month at the level that he bought it. Well, what did he do to turn it around? Well, his notes to me was he worked. He personally worked 60 hours a week for the first 12ish months to really get the business going. To talk to every member to ensure that all their trials got upsold to memberships, to find out what was broken, to fix it, to try to call old members back, to run a bunch of Facebook ads. Like he was running his own Facebook ads. And he was doing better than other franchisees, better than competitors. You know, they were local kids. The members loved us. It is what he said as coaches and managers. And then they weren't running any of the franchise playbooks, like they weren't following the process. The place needed help. And so he comes in there, young, energized person, local kids. That's the thing about franchises a lot of people don't understand is every franchise is a local business that just happens to have some playbooks that happens to share a brand name that you may recognize. But that's the whole model is that we are local businesses in our communities making an impact every day where we can go in and we can change things. And that is exactly what he did and is extremely exciting. I want to break down a little bit further on kind of how he makes money and to show these different levers because I think this is what's really interesting about this business model. Pre ownership, this is what this P and L looked like where before he bought it. This is roughly whatever, $36,000, close enough. It had wages, maybe had one person. Rent was still the same. Let's assume all these other costs are fixed. And this is the thing about when you're analyzing a business or you're thinking about getting into business, it's you want to know how much of the business is fixed. Like you have these expenses no matter what, and then how much of the business is variable in terms of, you know, you only have that cost if you have sales. But then, you know, the higher your sales, the more that cost grows. And the gym business is very interesting because it has a lot of fixed costs, right? When we really look into this, we would say rent's fixed, all this stuff. Well, except merchant fees. So in total, he's got about $180,000 in once again, seven months. Just so I'm like, apples to apples here. That is fixed, that he's gonna have to pay whether there's any members, right? Doesn't matter. But once you can cover those costs, he doesn't have a lot of variable costs. Wages are going to go up, right? Because if you have more to sell, personal training, for example, you need wages for personal trainers. His merchant fees are going to go up. And that's about it. So let's walk through this. So he bought the business. It looked like this. The business is making no money, losing 3% whatever rents, eating up almost 30% of the seller's income, operating expenses, 25% wages. And then what he did is he slowly started to turn this thing around. So the first thing he said is like, we need to charge more. I'm fixing all stuff. We're way undercharging. So the first thing he does, let's say, is he gets it to $70 per member per month, which can help turn the business now from losing money to turning a profit. And then he starts better marketing. We get from 600 to 700 members. All of a sudden, what's starting to happen is our pie is still the same size, right? It's still 100%, right. But we're diluting the cost of rent from 28% to 22% in operating costs now to 20%. Wages are going to stay the same because he budgets wages right around 25%. So that is going to stay the same no matter what we do. And. But we're going to see all these other numbers start to shrink. And then you continue to grow members, right? 800 members now profit is the biggest line, right? At 800 members. At $70 in sales per month per member, we can start to see that the business is getting more exciting. He continues to grow membership. Today he's at a thousand members, but he's not at $70. He's at $89 in revenue per customer. How does he get from 70 to 89 when you sell personal training? So not only are they paying their membership, but they're paying personal training, they're buying merchandise. Maybe they have some enhanced, like red light therapy and some other, like other new technology. And then all of a sudden, the business wildly making money 39% net operating margin, payroll still the same, right? Because we still need people there. But like all these other expenses get shrunk down. My P and L in my auto repair business looks nothing like this because we have a lot of high variable costs. I need to pay mechanics, I need to buy parts for the cars. My royalty is 10% of whatever I do in revenue. Whether I'm doing 50 million or 100 million or 5 million, I still pay 10%. I have a lot more costs that kind of like are static. At a percentage, the profit can only be so much. Awesome to see. He's a great operator. And so what he's doing today, like literally yesterday, he just opened his second gym. Now in this one, really cool story was that it was a brand new store. He found another location, he said, hey, I'm going to buy, I'm going to build this thing from the ground up. And so he went to a local bank, he showed them his P and L and they understood his business model. I want to say his budget for this next one is somewhere around 7 to $900,000 is what his build out is going to be on his brand new gym. And they gave him 100% financing to do it based on his existing business plus the equipment he was buying, plus the collateral. And in the new business, he's owned this thing for, let's call it four years where he put no money down to buy this business. He's turned it around, he's making $35,000 every single month out of it. And now he's leveraged that to put no money in to buying a second gym that has already pre sold members to break even and cover it. It's just amazing that you can snowball this. Right? One of the things I forgot to mention was he does not have any debt service on this. I don't know if you notice that or not but like he has no interest, he has no depreciation, he has no debt payments. He paid off that note pretty recently, I think last year. If you were to open one of these from scratch, if you're paying cash, you won't have it either. But if you're using debt, if you're getting seller finance, you will have a number here below this line for seller financing. So anyway, I'm really excited to continue to work with Eric in the eight figure franchisee. My community, I want to help him get to, you know, he could have 10 of these things just absolutely delivering an amazing business model for him. He's partners with his family to really just live a great life, have a great business and have a recurring revenue that just makes money every month. I hope you enjoy this. If you did drop me a comment, let me know what you think. If there's any other business models you want me to do, or if you would like me to break down your business model, I would love to see it. Drop it in the comments. We can get connected if you're willing to share the numbers. I would love to do more of these and subscribe and I'll see you in the next one. Cheers.