Build the Model Before You Build the Club

It’s easy to get excited about a space.

Good location. High ceilings. Plenty of parking. You start thinking about where the studios would go, what equipment you’d put in and how the whole thing could look.

Then you start putting numbers together to see if you can make it work.

I think we need to spend more time on the numbers before we get attached to the space.

Because once we like the location, we start finding reasons the business will work there. We can get a few more members. We can charge a little more. We can keep payroll tight until things pick up.

Individually, those assumptions might sound reasonable. Put enough of them together and we’ve built a plan that needs almost everything to go right.

I want the model to help us decide whether to do the deal in the first place. And if we do it, what the club needs to look like for the business to make sense.

Start with what we’re actually selling.

Before we talk about how many members we can get, we need to be clear on what those members are buying.

An open gym, a class-based studio and a club with training, Pilates and recovery have very different operating requirements. Even if they’re all in the same size space.

How often will members use it? What are they paying for? What’s included in the membership, and what costs extra?

Those decisions affect capacity, staffing and revenue. We can’t really separate them.

Take a studio with 16 spots per class, six classes a day and 30 operating days in a month. That gives us 2,880 available visits.

If the average member comes 12 times a month, that’s room for about 240 members. But that assumes every spot in every class gets used.

If we fill 70% of those spots on average, we have about 2,016 visits. At that same attendance frequency, that supports about 168 members.

That’s a pretty different business from one built around 240.

I wrote about peak-hour capacity in the last Note. We still have to account for when people actually want to come. But even this basic math helps us check whether the membership goal makes sense.

If the business needs 300 members to work and the schedule supports something closer to 170 under our assumptions, I want to know that now.

Maybe we need a different format, more capacity or a different price. Maybe it’s the wrong space. Those are decisions the model should help us make.

The membership price isn’t necessarily what we collect.

If our advertised membership is $249, it’s tempting to multiply every member by $249.

But are all of those members paying that?

We might have founding rates, household discounts, lower-priced tiers or promotions that stay on the books long after opening. The mix matters.

Say we have 300 paying members and the model assumes an average of $249 a month. That’s $74,700 in monthly membership revenue.

If the actual average is $219, we collect $65,700.

That’s $9,000 a month. Same member count.

We can hit the membership goal and still be well behind the revenue we expected.

I’d rather build the membership mix into the model from the beginning. How many people do we expect at each tier? What are they actually paying? How does that change as founding members become a smaller share of the business?

The same goes for additional revenue.

If we put $15,000 a month in personal training revenue, how many sessions is that? At what price? Who’s delivering them, and what do we pay that person?

Personal training, recovery and retail can all contribute. But each one needs an assumption we can explain. Otherwise, we’re just adding revenue to make the bottom of the spreadsheet look better.

Payroll needs more than a percentage.

Payroll is one of the first places I’d look if a model seems unusually profitable.

Sometimes the assumption is just a percentage of revenue. Other times there’s a list of positions with salaries next to them. I still want to understand what’s behind the number.

For hourly staff, how many hours are we paying for each week? For instructors, how many classes and at what rate? Have we included payroll taxes and the other costs of employing the team?

Then we need to look at when those costs begin.

We might need the manager a month before opening. We’ll have training hours before there’s any revenue. Once we open, we need enough coverage to operate even if membership takes longer to build.

That’s why a target payroll percentage can be misleading during the early months. Revenue can fall behind the plan without staffing costs falling with it.

And we need to account for the work we’re doing ourselves.

If the owner is managing the club, teaching classes and handling sales without taking a salary, that may be a reasonable decision during opening. But it needs to be visible.

I want to know what the business earns while the owner is covering those jobs and what it earns when we have to pay someone to do them.

That matters if we expect the club to eventually support us, or if we’re planning to open another one.

Getting open is only part of what we need to fund.

Construction and equipment get most of the attention because they’re big numbers and there are quotes attached to them.

But we’re also spending money on deposits, design, permits, insurance, software, marketing and preopening payroll. Then we open, and the business may need more cash while revenue builds.

The startup budget and the monthly operating model need to connect.

If we’ve raised enough to finish construction but haven’t funded the losses we expect during the first several months, we haven’t funded the plan.

Timing matters, too.

A landlord improvement allowance can reduce what we ultimately have to contribute. But when do we receive it? If we have to pay for the work first and get reimbursed later, we still need a way to cover those payments.

I’d want the model to show cash going out when we expect to pay it and coming in when we can reasonably expect to receive it. That includes loan payments and any money the owner needs to take out of the business.

Then I’d look at the lowest cash balance in the plan.

How close do we get to running out? What happens if opening moves back two months? What if membership takes longer to build?

A profitable year three doesn’t help us make payroll in month four.

Make the assumptions earn their place.

We’re not going to predict everything correctly. The point is to understand what we’re assuming and how much those assumptions matter.

If we’re projecting 50 new memberships a month, where are those people coming from? What are we assuming about leads and conversion, and what have we budgeted to generate that demand?

How many existing members do we expect to lose? The membership line needs to reflect that, too.

Once those assumptions are in place, I’d run a slower version of the plan. Fewer joins, a lower average membership rate or a delayed opening. See what happens to cash and what we could reasonably do about it.

If a modest miss means we immediately need another capital raise, the deal may be too tight. We might need more runway, a smaller buildout or better terms. We might need to pass.

A good model should change some of our decisions. The size of the space. The membership structure. What we include at opening and what can wait.

If the business only works at a price we haven’t supported, a membership count we can’t comfortably serve and a payroll number that leaves the owner covering every gap, we have more work to do.

I want to be excited about the club. I also want to know what has to be true for it to pay its bills and pay its owners.

We should be able to explain both before we sign.