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Transcription – Josh Leve Show 199

Chantal:               Josh, welcome along. Thank you for joining us on the show today.

Josh:                      Thank you. Appreciate being here.

Chantal:               We’re talking today about the 2018 Fitness Studio Operating and Financial Benchmarking Report. I want to thank you for joining us to dive into this today and I think it’s important that we actually start our conversation with a really thorough understanding of how you actually define a studio as part of that report.

Josh:                      Yeah, and that’s a really good place to start, Chantal. With this report, because the studio segment of the fitness industry is so diverse, there are personal training studios, yoga studios, Pilates studios, mixed martial arts, multi-discipline, bar studios, the list goes on and on and on. Really when we were looking at the data, what our team did was they really made sure that when they were cleansing the data to not include any data from facilities that were over 10,000 square feet, to not include any data that appeared to be the result of any type of errors on the respondent’s part, any misunderstanding or misrepresentation.

Josh:                      From there, what we did is make sure that there’s a large enough sample size. But the most interesting thing is even though I say this study included facilities up to 10,000 square feet, people say that’s not a studio, most interesting thing is because we hit our database so often to get the type of information that we like to pull and cleanse and stuff like that throughout our own database, we actually found that over 50% of the respondents had a facility that was about 2,500 square feet or less and nearly 70% of our respondents were about 5,000 square feet or smaller. We really do it off of the size of the facility and then within there, you can definitely know that there’s going to be a certain number of staff, typically, it’s about 3 or 4. As far as members, it’s typically going to range around 200, 300. A lot of those nuggets we’ve identified over the past few years of doing this type of reporting, but that’s kind of the meat and potatoes of the respondents that we look at.

Chantal:               You bring up a good point ’cause you have been doing this study for a couple of years. How many years has it been going for now?

Josh:                      This is now our fourth report. My gosh, when I think about that, we started in 2015 and that was off of 2014 data so yeah, 2015, ’16, ’17, ’18, yeah, so now our fourth report.

Chantal:               Now that we’ve got the 2018 data, can you share with us some of the key takeaways that you found?

Josh:                      Yes, my gosh, where to start? How to condense a 70-page report-

Chantal:               Do your best.

Josh:                      … so many good nuggets. No. Most interesting thing that we found from this report is that overall from all of our data, this is a segment of the industry that is continuing to mature. In virtually all of our financial data points, we saw that they’re all heading in a positive direction for studio owners. What that means, it’s something that I preach when I speak around the country is that they’re becoming more business savvy and their business acumen is catching up with that of their training philosophy.

Josh:                      When you dig into the data in the report, revenue is up. This year, it’s about $330,000 compared to about 295 or 240 of previous years. We also found that they’re utilising their square footage better so revenue per square foot is now at $90 compared to 77 and 68 in years past. Then what’s really interesting is that the reinvestment into their businesses is at the highest rate we’ve seen. They’re actually reinvesting more into their businesses. Nineteen percent of their gross revenue is going to reinvestment in their facilities as opposed to 11 and 12% in years past.

Josh:                      I think about those data points a lot and I’ve had numerous conversations from some of the most influential people in this industry from Todd Durkin to Rick Mayo and a variety of other people, and what’s interesting is that those business owners and the ones that are kind of the trailblazers in this segment of the industry, when they started 10, 15 years ago, they didn’t have any competition, right? I’ve talked to Todd, I’ve talked to Rick and they said, “Oh, my gosh, we didn’t know what we were doing.” But they had the ability to make mistakes and to guess because there wasn’t that competition like there is now.

Josh:                      Now when you go into business as a personal trainer, a fitness professional, a coach, whatever it may be, you can’t guess and be wrong. There is so much competition happening. It’s so much easier to get into business these days that you have to get it right from the start. Those were some key areas that I thought were really, really interesting. Even that last one about the reinvestment, it really does show that the competition out there is fierce and you need to be constantly ahead of the curve.

Chantal:               I’ve got to tell you, Josh, I love hearing that their professional development is taking a bigger role in what they do. I love hearing that their business acumen is increasing across the board. In relation to that reinvesting piece, is there any additional data around the areas of the business that they’re reinvesting in? Is there anything kind of deeper? What areas are they actually going into?

Josh:                      Yeah, a lot of what the reinvestment is looking at, it’s different types of equipment and different types of programming opportunities. For those businesses that are kind of lagging behind a little [bit 00:05:14], the reinvestment goes into either adding new types of programme like adding on a heart rate training programme or possibly creating more opportunity or more space to provide more of a diverse offering to their members and clients, which is an interesting way to look at it because you think studios, you think one discipline, which a lot of great businesses do, but they’re starting to become within the realm of where they’re located, they want to cast a wider net. They want to bring more people in, and if they can do that by adding on a new discipline or if they can do that by adding on a new programme or if they can do that in a way that kind of allows them the ability to still hone in on something that they’re awesome at and they do it better than anybody else, but have something else there that brings in more people, for them they’re looking at that as a differentiator.

Chantal:               You mentioned previously that we’re seeing obviously a lot more competition in the market and given the data that you collected from this study, what growth potential do you feel that there is for the studio market in the future?

Josh:                      That’s one of my favourite points within the study is that one of the things we always do when we’re cleansing the data is that because we go out to massive databases to pull in the right numbers so that we have a good segment of data to pull. We always have a number of fitness professionals that don’t own a studio that start our survey and ultimately what we do is we take them down a different path so it doesn’t impact some of the data that we ultimately end up putting in our final report. The craziest thing is in this study, we had nearly a thousand fitness professionals take our study and we had to take them down that other report and one of the questions we always ask is since you don’t currently own or operate a fitness facility or fitness studio, do you plan to open one in the future? The craziest thing about that was we found that nearly 40% of all the fitness professionals that took our study are contemplating opening up their own business.

Josh:                      When you extrapolate those numbers, the craziest thing is that the Bureau of Labour Statistics states that there’s about 340,000 personal trainers. When you factor in group exercise, when you factor in Pilates, when you factor in a variety of other disciplines, cycling, martial arts, stuff like that, you could easily say there’s in between 500 and 700,000 fitness professionals out there that have that dream and you take 40% of that, you’re looking at hundreds of thousands of fit pros out there who may or may not start their own business. We then asked the follow-up question is where in the process are you? We found more than 50%, I think it was 54% plan on opening in the next two years. Business is going to be growing on this side of the industry and for a variety of reasons why, which we’ll get into a little bit later.

Chantal:               I guess coming back to your original point, with that in mind, it just reinforces why it is so important for all of our studio owners to be continuing that ongoing professional development, to continue to reinvest in their businesses because if we’re already seeing a market that has quite a lot of competition that we’re going to see that increase. Correct?

Josh:                      Absolutely, absolutely.

Chantal:               Josh, in the report you say that income is driven by hours worked, not a difference in hourly compensation. Can you explain what that means?

Josh:                      Yeah, definitely. One of the things we did differently this year was we really looked at the fitness facilities, the fitness studios that are out there that are performing at a level that we believe is profitable and being for our members and the audience that purchases the report to be to see what that looks like in a financial ledger. Our research team kind of broke that down a little bit more and it comes down to maximising your work hours so you can get more people through your doors within the proper amount of time and getting more revenue per member.

Josh:                      For example, we found that the number of hours worked per trainer on average was about seven hours greater in profitable studios versus all others. Makes sense, those that are working more are making more money. But we also found that profitable studios were open on average eight hours longer during the week. Member retention in these facilities was about 6% stronger in profitable studios. There were a variety of other factors such as profitable studios overcome seasonality in a better way to drive revenue throughout the year so they’re really good at making sure they have the right programming in place so that during the summer months, they have a way to kind of get people in through referral programmes, through different types of programming that gets people engaged more. Profitable studios were really able to benefit from different ancillary revenue streams. They understood what it means to have as many revenue streams as possible to be pulling different revenue from anything other than your memberships or from client packages and things like that.

Josh:                      To summarise, trainer productivity is the number one thing. Make sure that your trainers are well versed in sales and getting as much revenue per member as possible. Member retention is huge. The member retention rate we found in our fitness studios was over 80% in those that participated in the study. Overcoming seasonality is a huge one and then to sum up, alternative revenue streams so that you’re not solely focused on just membership, but you have other means to really kind of increase your bottom line.

Chantal:               I’d actually like to talk a little bit more about that retention rate ’cause obviously it’s such a significant figure and again, you mentioned 80%, that the retention rate is up around that 80% mark, which is something like almost 10% higher than our traditional gyms or health clubs. Why do you think that is?

Josh:                      This is something that we study a lot at AFS and I can summarise it four distinct ways. Number one, the retention rates of these facilities, it’s because they’re solely focused on specialisation in community. A fitness studio can target specific customers and just as importantly, specific needs of those customers at any time of the day. They can hone in on one product if they’re a single discipline studio, on one product or one experience by affording that operator the ability to do that or make it believe that they do that better than anyone else. There’s this psychology that happens that if you left your traditional health club or a traditional big box facility and started your own business, that means you were successful in where you were before and that means that you’ve taken that knowledge and opening up your own business and you are now providing that knowledge to the other people there that come to work out for you. There’s that element.

Josh:                      Of course, within that element, you can focus on the fact that these studios actually are able to thrive on creating this atmosphere that breeds this feeling that together you can really accomplish anything within our four walls. You don’t get that within a big box facility no matter what you do. You still have to walk by a sales desk. You still have the front desk. You still have a massive cardio area or weight room. That’s number one.

Josh:                      Number two is they’re focused on high touch, results-driven coaching. Whenever I do a presentation, I always go out into our database and ask why are you guys so successful? It’s because they have that ability to be right there with their clients, but it’s also because of the feeling that the clients or the members get within that facility from the other clients. One studio owner I reached out to put it perfectly. They said, “Our customers we care about them and they also care about us,” which I thought was brilliant.

Josh:                      The third thing is that consumers trust local businesses. The retention rates are a reflection of all that. Consumers are going to go and they’re going to stay with businesses that they know and they trust. It’s just like people going to shop at a local farmers’ market, for them, there’s something about providing back into the community and they’re going to stay with businesses in which they feel that way. Corporate facilities don’t have that at all, but a local fitness studio is not providing groceries. They’re providing health and wellness. What better way to drive your retention than by being integrated within these facilities that are only providing you something for you to be healthier and stay more engaged in what that business is doing.

Josh:                      The fourth thing is real time convenience. I always tell the story about how when you walk into a health club, and now I haven’t managed health clubs in many, many years, but I remember, we used to have a one page group exercise schedule and somebody would come in and they’d say, “I want a yoga class.” “That’s great. We have yoga and it’s on Tuesdays at 7:00 AM, on Thursdays at 8:00 PM, on Saturday mornings at 10:00 AM.” “That’s great, but how does that fit into my lifestyle?” A fitness studio has the ability, especially if they’re a single discipline facility to allow their schedule to fit into the client’s lifestyle. Now when you’re talking retention rates, it’s so much easier for somebody to want to stay with a business like that because they can model their day already around what that fitness studio provides, allowing them the ability to have more options and ultimately, feel like their needs are taken care of.

Chantal:               Josh, did the 2018 report touch on virtual fitness at all or do you foresee that coming into the 2019 report?

Josh:                      That 2018 didn’t. We didn’t focus so much on kind of where the industry is going mainly ’cause it was more operating and financial, digging into that data. However, that is an interesting topic from the perspective of kind of where the industry is going. I like to say health is the new wealth and social experiences are kind of a new currency if you will and there’s so much opportunity on the virtual side of things. We talk VR, AR and really kind of how that tech is going to impact the industry.

Josh:                      There’s a video that I show, which is from a studio concept called Black Box, which is a complete VR immersive fitness studio that’s happening and I always get these eye rolls when I present to people and there’s a picture of a guy with a headset on doing curls. The virtual side of things is going to be really interesting to see how it impacts. The most important thing when you talk about the future of the fitness industry and virtual reality and just all these different things that are happening is that at the end of the day, when you focus on it, the money that’s coming into the fitness industry is not really coming from fitness companies.

Josh:                      There’s a lot that is, Precor and Life Fitness and some major brands, but there are major, major consumer brands like Apple and Samsung and Facebook that are having a real big hand in where the future of this industry is going. A lot of data. Of course, you can look at companies like Peloton as well from a virtual perspective on its impact on client retention and stuff like that, but I remember seeing a podcast with one of the co-founders of Peloton. He says, “Yeah, even though we created this bike and now treadmill in which you can hop on and take a fitness class virtually, I still attend my local fitness studio a couple times a week because there’s something about that personal engagement that you really can’t replicate in a virtual setting.”

Chantal:               Yeah, it’s really interesting. We actually had Anne-Marie [inaudible 00:16:30] on the show recently who had that exact conversation as in its the complementary sort of side between the virtual or even utilising virtual as a bit of a introductory platform, a trial platform before they move into normal classes. I’ll be very interested to ask you that question this time next year and hear what the developments have been, and whether or not that’s part of the 2019 study.

Chantal:               Josh, thank you because you’ve given us a really good insight into the study, but of course, there’s lots more information that is included in the report. For people that want to get their hands on the full report, what do they need to do and where do they need to go?

Josh:                      Yeah, great question. Very simple, just go to our website, afsfitness.com, that’s A as in apple, F as in Frank, S as in Sam, fitness.com. They can go right there, click on our store or our research tab and they’ll find it right there.

Chantal:               Excellent. Are there any final takeaways that you want to leave the FBP family with today?

Josh:                      There’s no final takeaways. The one thing I do want to say … I guess I have one takeaway.

Chantal:               We’ll call it one.

Josh:                      Yeah, just one. In the industry, things are changing so fast and in the presentations that I give, it’s always encouraging to see that in each of these business conferences, there’s more education being brought to the forefront as far as business education. There are fitness summits popping up. Of course, we have our own event coming up, but the more of that that we can do and not be in competition with each other and just kind of have that rising tide raise all boats, that’s what we’re all about. I think the more education we can get out into the industry on being successful ’cause nobody wins if a business goes out of business, and with these fitness facilities, especially the smaller ones, they need as much education as the big guys. We hope to bring that to the industry and we hope others will join in with their own events and the likes. Absolutely.

Chantal:               I can tell you as the Fitness Business Podcast is a professional development business resource, we 100% support what you’re saying. I want to thank you so much for joining us on the show today, Josh. It was great having you back on. All the very best for next year for your conferences coming out. Just give everyone a really quick preview, quick sneak peek about the conference.

Josh:                      Yeah, absolutely. We are launching the first major event for the Fitness Studio Market and anybody who’s thinking about going into business, it’s called Succeed and it’s going to be April 12 to 14, 2019 in Southern California, Irvine and it is 50 speakers, three keynote addresses, five pre-cons, a post-con event. We’ve got a slew of exciting announcements to come. If you haven’t checked it out yet, go to succeedwithafs.com.

Chantal:               Excellent. Josh, thank you once again for joining us on the show today.

Josh:                      Thank you, Chantal. It’s always a pleasure to be on. Thanks for having me.

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