Creating a Profitable Fitness Franchise
Discover the ingredients you need to turn your fitness business into a recipe for success.
As a fitness professional you may have already hit the mark with a personal training studio or a group exercise class. Now, you’d love to take your fitness business model to the next level. The big question: Is creating a franchised fitness brand your best next move?
With the last decade’s surge in brand-based fitness programming, more and more fitness industry entrepreneurs are creating franchise-based business models. But what brings fitness franchise fame to some, while others fade away? Read on to discover what it takes to turn your fitness sensation into a profitable franchise formula.
A franchise is a replicable business model; it can also be described as a salable system for making money. Established fitness franchises range from facilities (Curves®, Gold’s Gym®, Anytime Fitness®) to group exercise–based studios (Barry’s Bootcamp, Sunstone Yoga®, The Bar Method™) to prepackaged exercise class or fitness program concepts (Jazzercise®, Stroller Strides®).
The franchisor creates the successful business model, working out logistical problems to arrive at a proven way of making money. The franchisor sells this business system (or “franchise unit”) to franchisees, who pay the franchisor both one-time and recurring fees for the right to use the model.
In return, the franchisor offers logistical and business support. “We give our franchisees the right to use our brand, and they get all the tools and resources they need to run their business,” explains Lisa Druxman, MA, of San Marcos, California, who is the founder of the group exercise–based program Stroller Strides. The tools she provides are a Web-based business center, an email campaign program, a public relations program and more.
Becoming a fitness franchisor expands your brand’s reach while essentially using someone else’s money, explains Druxman, whose franchise targets new moms and has over 1,000 fitness locations nationwide. “You get to grow your business and take a percentage of the profits,” she says.
It certainly sounds appealing to receive regular payments from franchisees, but setting up a franchise requires serious capital, sweat equity and major change. How do you set yourself up to be a profitable franchisor?
Before you become a fitness franchisor, make sure you have completed the following—or are well into the process.
Change job descriptions. The business skills required to oversee a successfully franchised brand are completely different from the skills you need to be a small-business owner. “Going from running a successful business to running a successful franchise is not a natural progression,” explains Brandon Hartsell, MBA, co-founder and chief executive officer of Sunstone Yoga, a franchised yoga studio. “They are two, 100% entirely different activities and competencies,” says Hartsell, whose chain has grown to over a dozen locations in Dallas and Austin, Texas, since 2002.
And while your franchisees will enjoy delivering your fitness concept, your new role will be to promote and support your franchisees. “When you decide to franchise, you’re no longer in your original business,” says Druxman. “If your business was selling widgets, now your business is selling franchises and supporting franchisees. [The franchisee’s] business is selling widgets.”
Create a proven prototype. A franchise typically stems from a business that has grown so much that the owner can no longer expand it single-handedly, usually because more financial capital and human capital are required.
In other words, your concept needs to already be a business success before you even consider becoming a franchisor, notes Casey Conrad, JD, a fitness business consultant in Wakefield, Rhode Island, and founder of the franchised weight loss program Healthy Inspirations. Druxman agrees: “No one wants to invest in a company that even the founder can’t run successfully.”
Devise a systematized, teachable model. For your model to work as a franchise, “your [business] systems need to be well thought out, teachable and easily replicable,” explains Druxman.
“Ask yourself, ‘Do I have documented systems (i.e., for administration, operations, marketing, sales, programming) that are in a format such that someone who knows absolutely nothing about this business would be able to follow and implement [them] on his or her own?’” says Conrad. “If not, you better get to work [on your systems] before you even consider franchising.”
Hire support staff. The fitness industry offers many opportunities to work alone, or to hire independent contractors (such as when you rent studio space to independent personal trainers). However, franchising requires hiring employees (i.e., your own staff, completely separate from your franchisees). “You can’t run a franchise business alone, as there are too many roles to fill,” notes Druxman.
At the same time, aspiring franchisors must be careful to avoid overhiring—to make sure they can keep costs low, advises Chris Lincoln, the Portland, Oregon–based co-founder of the barre3 chain. “The key is to grow with a lean team without sacrificing the support your franchisees need,” says Lincoln, whose franchised exercise studios deliver fusion classes based on ballet and mind-body techniques.
Accumulate serious capital and hire a good lawyer. “An aspiring fitness franchisor should expect a lot of expenses associated with managing and supporting franchisees,” explains Hartsell.
First, consider legal fees. A franchise is a highly regulated legal and business structure that must conform to federal securities laws (i.e., regulations pertaining to certain aspects of business ownership) as well as the laws of the individual state(s) in which franchise units operate. “The expense—both initially and ongoing—to simply [hire a lawyer and] maintain the legal elements of franchise status is huge,” notes Conrad.
The ongoing costs of employing in-house staff will be another major source of day-to-day expenses, says Lincoln. Plus, you’ll need equity on hand: both federal and state regulatory bodies will want to know that you have enough capital to stay in business for your franchisees, Druxman explains.
In short, becoming a franchisor comes with a significant price tag: “Expect to spend anywhere from $50,000 to $150,000 [before you even launch], depending on your franchise’s reach,” summarizes Druxman.
What if you want to grow your business, but the structure of a franchise seems like overkill? Consider its simpler, less-complex cousin: a license.
Licensors grant the right (i.e., a license) to use, sell or market their intellectual property (for example, their personal training program) for a certain period of time. However, they do not offer ongoing business support to licensees, as would occur in a franchise situation. Examples of industry licensors include Zumba® and Batuka, wherein instructors purchase a license (often via training course fees) to teach a branded group exercise program.
Compared to a franchise, a license has a less complex business structure and fewer legal, regulatory and logistical requirements. “I get calls all the time from people thinking about starting a franchise and I tell them, ‘If there is a way you can do it as a license, I highly suggest it,’” explains Conrad.
Generally speaking, franchising is best for more complex, capital-heavy businesses (such as gyms and personal training studios), while licenses work well when less quality control and business support are required (as with group exercise programs.) “For most class concepts there is absolutely no reason to go the franchise route,” Conrad says.
Of special note: There are potentially catastrophic legal repercussions for failing to correctly categorize your business as a franchise versus a license. Always seek professional legal advice when establishing either one.
Franchising is complicated but potentially very rewarding. To decide if it’s right for you, “Find another franchisor who is willing to mentor you,” advises Hartsell. A franchise attorney can also help you decide if the complexities and costs are right for your concept. You never know—it may be your business brand that evolves into the next great fitness franchise.
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How does a small business evolve into a franchise? Here are two examples of real-world success.
From license to franchise: Healthy Inspirations. Healthy Inspirations is a successful weight-loss program that Casey Conrad founded as a small business. “I opened a stand-alone location and, because of my exposure in the industry, people started asking if they could license the concept,” she says.
Thus in 2000 the program was first licensed to health club operators for use within existing facilities. However, as it gained popularity and complexity, the model needed to evolve. “I started out with a license because it is much easier to operate from a legal standpoint, but I ended up having to convert into a franchise [in 2004],” explains Conrad, who sold out of the company in 2008.
From private company to franchise: barre3. Chris Lincoln and two business partners opened the first barre3 studio in August 2008 under a privately owned limited liability company (LLC) business structure. Two other LLC-owned locations soon followed, and the company thrived. “We realized the opportunity we had in front of us,” explains Lincoln, since barre3 had a simple, appealing business model.
To accommodate an expansion, Lincoln and his partners formed a separate LLC in April 2010 to run the franchise operation. It now encompasses 13 barre3 locations in the United States and abroad, and Lincoln projects that this number will double in the next year.
The law uses certain specific criteria to determine whether a business is a license or a franchise. If your concept meets the franchise criteria, legally you are considered a franchisor. So while you may think you are selling licenses, you may actually be illegally selling franchise units—with serious repercussions.
“Many people today offering licenses don’t realize that they are in fact [legally considered to be] a franchisor,” cautions Conrad. “The result is that [the entrepreneur] will have to go back to every single person [who purchased the business model] and offer to refund both their up-front fees and any monthly fees they have paid.” Always hire a lawyer when growing your business model!
© 2011 by IDEA Health & Fitness Inc. All rights reserved. Reproduction without permission is strictly prohibited.
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