Snap Fitness
Franchise Opportunities with Snap Fitness: A Cost Assessment and Financial Feasibility Analysis
Owning a business can be a ticket to financial independence and the freedom that comes with not having a boss, but before this level of success can be reached a great deal of hard work and careful planning are necessary. A franchise can help to simplify or outright solve many of the problems involved in starting and maintaining one's own business, but even with a franchise there must be care taken in the planning and execution of the business in order for costs to be controlled and profitability to be achieved. The following pages present a brief cost analysis and overview of opening a Snap Fitness franchise, based on information given in a case study and available on the Snap Fitness website. Through this information, as well as through estimations and calculations made based on this information, a cost and revenue analysis makes it clear just how much care a franchise can take.
CVP Analysis
A cost-volume-profit or CVP analysis is one basic way to determine what will be necessary for keeping a franchise in operation. The spreadsheet attached as Appendix A contains the basic calculations necessary for this type of analysis, as described here and based on figures that were provided in the case study. This case study stipulates that fixed operating expenses are $4,000 per month, equipment leases run $2,000/month, membership fees ate $26/month per member, and that 300 members will allow the business to break even (BYP19-7).
From this information, and given knowledge of the equations necessary for a CVP analysis, the average monthly variable costs -- at least, the variable costs at the level of 300 members -- can be calculated. First, adding together the $4,000 in operating expenses and the $2,000 in equipment leases per month yields a total of $6,000 in fixed monthly costs for the running of a Snap Fitness franchise. Revenue for the month at 300 members would be 300 multiplied by the member fee for each member, or $26, which is a total of $7,800 (which breaks down to a cost of $6 per member per month). If 300 members allows the franchise to breakeven, then the revenue generated by 300 members ($7,800) would be equal to the fixed costs plus the variable costs, so subtracting the total monthly fixed costs ($6,000) from the revenue provides the variable costs that would exist with 300 members. 7800 -- 6000 = 1800, so the variable costs for a Snap Fitness franchise with 300 members would run about $1,800 per month. Fixed costs remain the same no matter how many members there are (thus the term "fixed"), and variable costs often hold a direct proportion with the number of units produced (in this case, the number of members at the franchise) increase, therefore increasing the number of members would not only increase revenue, but would also increase the profit margin. As 300 members is the breakeven point, the profit at this point is zero, and revenue in excess of $7,800 is necessary to make this venture worthwhile.
Net Income
Net income is simply the revenue a company generates less the expenses it incurs in generating this revenue. In the case at hand, the costs for a Snap Fitness franchise each month include the $6,000 in fixed costs and the $6 per member in variable costs; any revenue in excess of these costs would be net income. This can be expressed as an equation thusly:
(Unit Revenue x Units) -- (Variable Costs x Units) -- Fixed Costs = Net Income
Given a target net income for the Snap Fitness franchise of $10,000 per month and the other information given and calculated above yields the following equation, with X standing in for the remaining unknown element -- the number of units necessary to generate a net income of $10,000:
26x -- 6x -- 6,000 = 10,000
This equation can easily be rearranged, simplified, and solved for x, yielding the...
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