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The Business Plan - Part 3: Demographics

In today’s blog we continue on the subject of the Business Plan by taking a close look at demographics research.

Choosing the right location for your affiliate gym can greatly impact how successful your box will be, and how quickly you can go from opening to breaking even and eventually making money. One of the most powerful tools, used by major retailers, restaurants, and service providers is demographics research. Some data is readily available online and can be found in a simple Google search. Other data may require additional digging and resources, like a trip to City Hall or pulling strings and asking for favors from a qualified commercial real estate agent. In the end, though, you can be certain that the effort will pay off and improve your chances of success.

To start, a quick visit to any box will give you a good idea of the general characteristics that you’ll want to look for when scoping out locations for a gym: primarily individuals between the age groups of 20-45, a mix of 60% male to 40% female members, and a pool of potential members can actually afford your services.

A good online source for demographics data is freedemographics.com. Just start by typing in the ZIP code or address of the community or specific location you’re thinking of setting up shop in, choose the radius ring distances, and start to analyze the results. As an actual example of a box that was opened, here is a demographics report for West Hollywood. One caveat - distance is not always the best measure for demographics reports. Often times, drive time is a better indicator of who your potential target market is. I’ll explain more below.

When looking at your demographics report, you’ll want to look for the following information:

Total Population of an Area: You want to make sure that there is a good enough concentration of people to potentially fill your gym. Our West Hollywood example shows total population of 18,833 in a 1-mile radius, 102,730 in a 2-mile radius, and over 400,000 in a 4-mile radius. While your neighborhood may not be as densely populated as this, you’ll want to have at least 30,000 people in your target zone. In this market, while we would love to capture the full 4-mile ring as a potential market, we know that during normal times of the day, a 4-mile drive through this part of LA could take 20 minutes, and could double during peak traffic hours. We know that we would have to concentrate our efforts on the 2-mile zone, and hope that word of mouth and quality programming will attract those outside the zone.

Median Household Income: Look to the right of the little map and you see a chart showing Median Household Income for the selected areas. In the case of West Hollywood, median household income appears to be just over $60,000 in the 1-mile ring and just under $60,000 in the 2-mile ring. These numbers must also be factored in with another number found just below - Average Household Size, which is 1.7 persons per household. Now, even most basic math will tell you that dividing a median income of about $60,000 between 1.7 people means that the people there, while not wealthy, have a good amount of disposable income compared to a suburban community with similar income and much larger average household size. Obtaining a paid or better demographics report will give you access to more in-depth information, such as actual disposable income levels and the hobbies and interests of people in the target market.

Total Population by Sex: Right below the Total Population numbers you’ll see the breakdown of the population by sex. In the case of West Hollywood, the numbers show a great existing mix of almost 60% male to 40% female - a near perfect match to what you would want your box to look like. If your target market varies significantly from this ideal mix, you'll just have to adjust your marketing to attract that sex from outside the immediate market, adjust your programming to appeal more to that target group, or just be happy with a business filled with men or women.

Population by Age: The freedemographics.com breaks down population by age into genders, so you’ll need to do some math on your own, but even looking at the numbers shows that, in the case of females, roughly half of men and women in the 2-mile zone fit our ideal member age group (20-45). Basically, of the 100,024 people living in the 2-mile ring, we could effectively market to half and expect some response.

Drive Time Caveat: While your search is based on a ZIP code, you'll want to factor drive-time into the equation as well. Most people will drive a maximum of 20 minutes to get to a box that they like, while a select few may drive up to 30 minutes. The free demographics reports will not provide you with this data, so you’ll have to make some educated guesses, or get a more comprehensive demographics report from a qualified commercial real estate agent. Look for one that has a CCIM designation as they have access to an amazing suite of demographics reports.

Now that you have gathered all of this information, what do you do with it? Start to use it in your business plan and make it stronger through educated guessing. In this actual case, they were looking at a 5,000 square foot facility and were planning on capping memberships at 500 members. There was a population pool of about 100,000, of whom half fell into the ideal age range, so they knew they had about 50,000 people to work with. With a median household income of about $65,000, we knew that at least half of the 50,000 made enough money to be able to afford the $195 monthly membership rates, narrowing the field to 25,000 prospects - an amazing starting point. At the time, there was one other box inside of the 2-mile ring, so they halved the prospect pool to play it safe. Knowing that they needed to convert only 4% of the reduced prospect pool to hit 500 members and achieve their goals, they started their marketing campaign to make this happen.

Within 12 months they had hit the 500 member mark and had a 30-45 day waiting list for new memberships.

Demographics research and understanding is just one of many steps in developing a business plan and successful business management system. It allows you to plan for growth and anticipate issues before they arise. It is just one of many things to think about when planning your box.

If you need assistance analyzing your potential market demographics, shoot us an email at info@maxwod.com.

 

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