Snap Fitness CVP and Break-Even Analysis
Looking into opening a small business can be a daunting task but with various opportunities for buying into a franchise, becoming a small business owner seems to be a reality for some. Each franchise provides various information pieces about their franchise to attract new owners. When someone is looking to invest in a franchise, doing an analysis to validate the information provided by the franchise is critical in understanding whether or not the franchise is going to be as profitable as projected. One such franchise is Snap Fitness out of Minnesota. Knowing the fixed costs of operating the franchise one can determine how many members are need to break even. Also, included is an analysis of achieving a $10,000 net income for a month of operations. To be a valid analysis, we have included five examples of variable costs associated with a fitness center. Variable Costs
As the owners of a new business, the ultimate goal is to make a profit. Profit can be measured in many ways and there are many complex techniques that can be used to calculate how much of a product or service must be sold to produce a profit. Cost Volume Profit or CVP is one of the most useful ways for managers to understand the relationship between cost, volume, and profits, and make competent management decisions. CVP analysis focuses on five areas: *Unit selling price
*Variable cost per unit
*Total fixed cost
*Volume or level of activity
Based on our research of Snap Fitness, some of this information is available to perform CVP analysis. We will begin by eliminating the focus on sales mix, for now, as a start-up franchise, we are only focusing on selling memberships. The initial CVP analysis will be based on breaking even. Research shows that acquiring only 300 members will allow Snap Fitness to avoid any financial loss. By offering a standard membership rate of $26 per...