BYP19-7 Many of you will someday own your own business. One rapidly growing opportunity is no-frills workout centers. Such centers attract customers who want to take advantage of state-of-the-art fitness equipment but do not need the other amenities of full-service health clubs. One way to own your own fitness business is to buy a franchise. Snap Fitness is a Minnesota-based business that offers franchise opportunities. For a very low monthly fee ($26, without an annual contract) customers can access a Snap Fitness center 24 hours a day. The Snap Fitness website (www.snapfitness.com) indicates that start-up costs range from $60,000 to $184,000. This initial investment covers the following pre-opening costs: franchise fee, grand opening marketing, leasehold improvements, utility/rent deposits, and training. Instructions
Suppose that Snap Fitness estimates that each location incurs $4,000 per month in fixed operating expenses plus $2,000 to lease equipment. A recent newspaper article describing no-frills fitness centers indicated that a Snap Fitness site might require only 300 members to break even. Using the information provided above, and your knowledge of CVP analysis, estimate the amount of variable costs. (When performing your analysis, assume that the only fixed costs are the estimated monthly operating expenses and the equipment lease.)
Contribution needed to meet (4000+2000) total fixed cost = $ 6000.
This should be achieved from 300 members.
Contribution needed from each member to break-even is 6000 / 300 = $20.
Monthly fee collected = $ 26.