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The Business Plan - Part 6: Determining a Location Type

Today we continue The Business Plan discussion of How to Start a Box by discussing how to choose a location for your business. There are a variety of location types that work well for affiliates, and any one can be right for you.

 

How do you pick the right location? This question is commonly asked but difficult to answer as each affiliate has different needs and desires. The choice of where to locate your box can usually be determined when you develop your competitive advantage module (The Business Plan – Part 2). There is no single formula for success when selecting a location as long as the demographics are right. Oftentimes the choice comes down simply to cost, but even the issue of price is not always a cut and dry decision.

 

Some affiliates choose to open garage-style gyms in industrial warehouses or office parks, while others seek out only high visibility prime retail locations. There is no right or wrong answer, and every choice comes with its own positives and pitfalls. Here are a few suggestions that may help you choose what location is best for your gym:

 

Off the Beaten Path
 

Pros

  • Lower Rent
  • Larger Spaces
  • Usually More Flexible Landlords & Terms

Cons

  • No Visibility
  • Difficult Access
  • No Foot Traffic

 

While the cons are fairly clear, the pros of an off the beaten path location are also double-edged. Lower rent may give you the sense of lower risk, but that has to be tempered against the optimistic desire to take a bigger space than you may need. We've seen affiliates take huge 10,000+ square foot warehouses and occupy only a third of the space with the intention of “growing into the space.” The problem is, a big empty warehouse is not a cool place to work out in, and it's tough to develop a vibe when everyone is spread out. Another problem is that you may feel compelled to use all of the space, which means additional spending on equipment, flooring, toys, and décor. A final note about big spaces: they cost a lot of money to keep clean, heat, and cool.

 

Let's do a quick run through of the cons to highlight some things for you to consider and plan for. Lack of visibility and difficulty to find and access means you likely won't get much, if any, foot traffic. Your main sources of new business will be a result of word-of-mouth, promotions, and advertising. While word-of-mouth may be free, promotions and advertising are not, adding indirectly to your occupancy costs.

 

High Visibility Prime Location

Pros

  • High Visibility
  • High Foot & Car Traffic
  • Greater Signage & Branding Opportunity

Cons

  • Higher Rent
  • Smaller Spaces
  • Parking May Become an Issue

 

This just comes down to the numbers. Let's assume you want to rent a 2,000 square foot space in each scenario. The off the beaten path location costs $6/SF annually, and the prime location space costs $12/SF annually. This works out to $1,000 per month versus $2,000 per month – seems like a big difference, until you do some math:

 

If your membership costs $175 a month, you'll need to sign up an additional five or six members each month to justify the extra rent. If you factor in the costs for advertising that you'll absolutely need to buy for an off the beaten path location, the cost difference becomes even less.

 

The assumption above was for 2,000 square feet, so the numbers will only grow if you go after a bigger space. Run your numbers and make the decision for yourself.

 

Our business model has always been based on taking advantage of the pros of high visibility prime locations, so we're a bit biased. Here's why:

When we look at our historical membership growth across our clubs, we see that 40% of new members come to us as a result of member referrals, 30% are a result of marketing and promotions, and 30% are from walk-ins and drive-bys. We average 40 new members per month, so we can attribute 12 new members each month just to the visibility and profile of our location. At $175 per month membership, this works out to about $2,100 of additional sales directly attributable to location. The additional costs of the location took just a few months to make up for, after which every additional member was gravy. This is not to say that the prime location is a magic bullet or guarantee of success; this is just what's worked for us. Los Angeles is one of those places where people want convenience and easy access, and will pay a little more for it. There are also plenty of garage-style boxes doing great business in LA, too.

 

Opening a Gym whether it’s in a Garage or Prime Location is an amazing achievement. Do what you can afford and what you think will work for you.

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