In this exclusive Franchise Chatter FDD Talk post, you’ll learn the following:
Section I – Estimated initial investment (franchise costs) for a Planet Fitness franchise, based on Item 7 of the company’s 2024 FDD
Section II – Initial franchise fee, royalty fee, and marketing fee for a Planet Fitness franchise, based on Items 5 and 6 of the company’s 2024 FDD
Section III – Number of franchised and company-owned Planet Fitness outlets at the start of the year and the end of the year for 2021, 2022, and 2023, based on Item 20 of the company’s 2024 FDD
Section IV – News updates on the Planet Fitness franchise opportunity
Section V – Presentation and analysis of Planet Fitness’ financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2024 FDD, including information on the:
- 2023 average, median, high, and low annual EFT revenue for the bottom third, middle third, and upper third of the franchised Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023
- 2023 average, median, high, and low annual EFT revenue for the bottom third, middle third, and upper third of the corporate-owned Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023
- 2023 average, median, high, and low annual EFT revenue for the bottom third, middle third, and upper third of the franchised and corporate-owned Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023
- 2023 average membership sales (EFT); other membership sales; total net revenue; payroll costs; marketing expenses; royalties; utilities; supplies and maintenance; miscellaneous expenses; rent; total operating expenses; and earnings before interest, taxes, depreciation, and amortization (EBITDA) for the bottom third, middle third, and upper third of the corporate-owned Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023
- 2023 average net revenue per square foot, average EBITDA per square foot, and average number of square feet for the bottom third, middle third, and upper third of the corporate-owned Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023
Section VI – Key ratios, comparables, computations, and analyses for the Planet Fitness franchise opportunity (exclusive content for Platinum subscribers)
Section I – Planet Fitness Franchise Costs
- Initial Franchise Fee: $0 to $20,000
- Site Selection Costs: $0 to $10,000
- Construction Development Plan Review Fee: $0 to $4,000
- Leasehold Improvements: $1,250,000 to $2,142,000
- Fitness Equipment: $43,000 to $1,059,000
- Non-Fitness Equipment: $77,000 to $1,037,000
- Pre-Sale/Grand Opening Marketing: $40,000 to $112,000
- Exterior Signs: $12,000 to $39,000
- Computer System, Point of Sale System, and Other Supplies: $3,000 to $13,000
- Insurance: $15,000 to $35,000
- Real Estate Lease Deposits: $0 to $87,000
- Other Deposits: $0 to $46,000
- Professional Fees: $2,000 to $25,000
- Out-of-Pocket Initial Training Expenses: $1,500 to $7,500
- Licenses/Bonds: $100 to $5,000
- Additional Funds for Three Months: $61,000 to $517,000
- Total Estimated Planet Fitness Franchise Costs: $1,504,600 to $5,158,500
Section II – Planet Fitness’ Initial Franchise Fee, Royalty Fee, and Marketing Fee
- Initial Franchise Fee: $0 to $20,000
- Royalty Fee: 7% of the total gross monthly and annual membership fees payable to you via EFT Dues Draft
- National Advertising Fund (“NAF”) Fee: annually, 2% of the EFT Dues Draft
- Local Advertising Funds (“LAF”): greater of $60,000 or 7% of total gross monthly membership fees payable to you via EFT (“Monthly EFT”) in a year
- Advertising Cooperative Fees: will vary under the circumstances
- Special Marketing Programs: up to 7% of Monthly EFT for a single month
Section III – Number of Franchised and Company-Owned Planet Fitness Outlets
Franchised
2021
- Outlets at the Start of the Year: 1,949
- Outlets at the End of the Year: 2,060
- Net Change: +111
2022
- Outlets at the Start of the Year: 2,060
- Outlets at the End of the Year: 2,082
- Net Change: +22
2023
- Outlets at the Start of the Year: 2,082
- Outlets at the End of the Year: 2,201
- Net Change: +119
Company-Owned
2021
- Outlets at the Start of the Year: 101
- Outlets at the End of the Year: 110
- Net Change: +9
2022
- Outlets at the Start of the Year: 110
- Outlets at the End of the Year: 232
- Net Change: +122
2023
- Outlets at the Start of the Year: 232
- Outlets at the End of the Year: 254
- Net Change: +22
Section IV – News Updates on the Planet Fitness Franchise
Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Planet Fitness Franchise (Item 19, 2024 FDD)
Part 1 – EFT Revenue
- The following chart shows Annual EFT Revenue for Planet Fitness’ corporate-owned and franchised clubs in the United States (including 13 in Puerto Rico) for those clubs open and operating during the 12-month period ended December 31, 2023.
- The clubs were separated into three groups, or thirds, based on Annual EFT Revenue (i.e., Bottom Third, Middle Third, and Upper Third).
- Annual EFT Revenue is revenue on recurring monthly and annual membership fees that are billed to club members. This does not include any prepaid membership fees, revenue from retail sales or other sources of revenue, and it excludes returns and taxes.
2023 EFT Revenue for Franchised Clubs Only
- Amounts are rounded to the nearest whole dollar. Amounts represent electronic funds presented for draft for the 12 months of 2023.
Bottom Third (693 Clubs)
- Average Annual EFT Revenue: $1,179,611
- Median Annual EFT Revenue: $1,227,398
- High Annual EFT Revenue: $1,498,988
- Low Annual EFT Revenue: $322,779
Middle Third (693 Clubs)
- Average Annual EFT Revenue: $1,764,506
- Median Annual EFT Revenue: $1,769,166
- High Annual EFT Revenue: $2,052,739
- Low Annual EFT Revenue: $1,500,364
Upper Third (692 Clubs)
- Average Annual EFT Revenue: $2,553,536
- Median Annual EFT Revenue: $2,421,829
- High Annual EFT Revenue: $5,352,916
- Low Annual EFT Revenue: $2,052,876
- For the calendar year ended December 31, 2023, of the 693 clubs in the Bottom Third, 388 (or 56%) met or exceeded the total Average Annual EFT Revenue in the table above for those clubs in the Bottom Third.
- Of the 693 clubs in the Middle Third, 354 (or 51%) met or exceeded the total Average Annual EFT Revenue in the table above for those clubs in the Middle Third.
- Of the 692 clubs in the Upper Third, 267 (or 39%) met or exceeded the total Average Annual EFT Revenue in the table above for those clubs in the Upper Third.
2023 EFT Revenue for Corporate-Owned Clubs Only
- Amounts are rounded to the nearest whole dollar. Amounts represent electronic funds presented for draft for the 12 months of 2023.
Bottom Third (79 Clubs)
- Average Annual EFT Revenue: $1,356,496
- Median Annual EFT Revenue: $1,360,070
- High Annual EFT Revenue: $1,719,837
- Low Annual EFT Revenue: $655,292
Middle Third (78 Clubs)
- Average Annual EFT Revenue: $1,976,120
- Median Annual EFT Revenue: $1,981,180
- High Annual EFT Revenue: $2,243,117
- Low Annual EFT Revenue: $1,723,470
Upper Third (78 Clubs)
- Average Annual EFT Revenue: $2,609,356
- Median Annual EFT Revenue: $2,493,781
- High Annual EFT Revenue: $4,020,833
- Low Annual EFT Revenue: $2,244,122
- For the fiscal year ended December 31, 2023, of the 79 clubs in the Bottom Third, 40 (or 51%) met or exceeded the total Average Annual EFT Revenue in the table above for those clubs in the Bottom Third.
- Of the 78 clubs in the Middle Third, 39 (or 50%) met or exceeded the total Average Annual EFT Revenue in the table above for those clubs in the Middle Third.
- Of the 78 clubs in the Upper Third, 26 (or 33%) met or exceeded the total Average Annual EFT Revenue in the table above for those clubs in the Upper Third.
2023 EFT Revenue for Corporate and Franchised Clubs
- Amounts are rounded to the nearest whole dollar. Amounts represent electronic funds presented for draft for the 12 months of 2022.
Bottom Third (771 Clubs)
- Average Annual EFT Revenue: $1,193,642
- Median Annual EFT Revenue: $1,245,623
- High Annual EFT Revenue: $1,515,903
- Low Annual EFT Revenue: $322,779
Middle Third (771 Clubs)
- Average Annual EFT Revenue: $1,786,328
- Median Annual EFT Revenue: $1,783,519
- High Annual EFT Revenue: $2,071,009
- Low Annual EFT Revenue: $1,515,952
Upper Third (771 Clubs)
- Average Annual EFT Revenue: $2,561,081
- Median Annual EFT Revenue: $2,431,733
- High Annual EFT Revenue: $5,352,916
- Low Annual EFT Revenue: $2,071,977
- For the fiscal year ended December 31, 2023, of the 771 clubs in the Bottom Third, 435 (or 56%) met or exceeded the total Average Annual EFT Revenue in the table above for the clubs in the Bottom Third.
- Of the 771 clubs in the Middle Third, 383 (or 50%) met or exceeded the total Average Annual EFT Revenue in the table above for those clubs in the Middle Third.
- Of the 771 clubs in the Upper Third, 298 (or 39%) met or exceeded the total Average Annual EFT Revenue in the table above in the Upper Third.
Part 2 – 2023 Revenue and Operations Statement for Corporate-Owned Clubs
- Below is a Revenue and Operations Statement for 231 of the corporate-owned Planet Fitness clubs disclosed above for the fiscal year ended December 31, 2023. Planet Fitness excluded the Acquired Clubs, as it does not have complete expense information for these clubs during the time periods in which they were franchised clubs.
- These results are derived from Planet Fitness’ books and records, which are maintained in accordance with U.S. generally accepted accounting principles.
- Planet Fitness has not included any franchisee information in the following table because it does not receive complete expense information from its franchisees.
- Revenue – The principal source of revenue for a Planet Fitness club is membership fees. Monthly and annual membership fees are usually paid through electronic transfer of funds (EFT). A fitness facility will also earn additional revenue included in “Other Membership Sales” above through enrollment fees, prepaid memberships, beverage sales, sale of tanning goggles and lotions, Planet Fitness apparel, and headphones.
- Costs and Expenses – The expense information included in the Revenue and Operations Statement reflects the costs and expenses of the corporate locations included in the Statement, including royalty and marketing expenses as discussed below.
- Note that costs to replace equipment and remodel the premises are not included as expenses, but rather are accounted for as depreciating assets.
- Marketing – The marketing expenses listed below reflect the average of actual amounts the corporate-owned clubs in each third contributed to the National Advertising Fund (NAF) and spent on local advertising. The advertising is primarily performed through preferred corporate vendors.
- Royalty – Royalty is 7% of gross EFT revenue. The amounts in the tables below are the averages of the actual royalties paid by the clubs in each third calculated based upon payment of a royalty of 7% of gross EFT revenue.
- Utilities – Utility costs varied significantly depending on the size and location of the club.
- Supplies and Maintenance – The supplies and maintenance amounts listed below reflect the average of actual amounts these corporate-owned clubs in each third spent on cleaning supplies, club supplies, and repairs and maintenance.
- Miscellaneous – Miscellaneous expense includes cost of goods sold, POS fees, insurance, billing charge, bank and credit card charges, equipment rental, office expense, sales and use tax, and other miscellaneous expenses.
- Insurance costs vary on a club-by-club basis. The insurance costs noted in the statement below are based on bulk buy pricing for multiple clubs.
- Bank and credit card charges will vary based on the banking institution used and type of club membership draft. Drafting membership fees from credit cards will result in higher fees than membership fees drafted from bank accounts.
- Sales and use tax will vary based on the location of the club. Every state will have different rules applying to sales and use tax.
- Other miscellaneous expense includes foods, filing fees, licenses, permits, gifts, travel/meals, postage, online join expense, and professional fees. Many of these costs can vary significantly depending on the location and the time spent looking for the best possible local cost on these items.
- Rent – Rent varies significantly depending on the size and location of the club.
- EBITDAR and EBITDA – EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) does not include any provision for income taxes or non-cash expenses such as depreciation or amortization or any debt service. It also does not include any expense assumption related to the capital structure of the business entity or any reserve for future capital expenditures.
- The statement also does not factor in the initial franchise fee or other initial investment expenses, including expenses for a lease/purchase of equipment as these clubs have been open and operating for more than one year. Planet Fitness anticipates that every franchisee will fund their initial investment differently, and it therefore cannot make any assumptions on how you would account for these items.
- EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent) does not include rent expense.
Bottom Third (Average)
Revenue
- Membership Sales – EFT: $1,306,800
- Other Membership Sales: ($32,298)
- Net Revenue: $1,274,502
- Net Revenue $/Sq.Ft.: $70.18
Operating Costs and Expenses
- Payroll Related: $288,752
- Local Marketing Expenses: $82,008
- National Advertising Fund: $24,433
- Other Marketing Expenses: $2,799
- Royalties: $94,528
- Utilities: $66,464
- Supplies and Maintenance: $64,809
- Miscellaneous: $80,114
- Total Operating Costs and Expenses, Excluding Rent: $703,907
EBITDAR: $570,595
EBITDAR % of Net Revenue: 45%
EBITDAR $/Sq.Ft.: $31.42
- Rent Expense: $294,024
- Total Operating Costs and Expenses: $997,931
EBITDA: $276,571
EBITDA % of Net Revenue: 22%
EBITDA $/Sq.Ft.: $15.23
Average of Sq.Ft.: 18,160
Middle Third (Average)
Revenue
- Membership Sales – EFT: $1,922,538 (102.6%)
- Other Membership Sales: ($48,042) (2.6%)
- Net Revenue: $1,874,496 (100.0%)
- Net Revenue $/Sq.Ft.: $95.26
Operating Costs and Expenses
- Payroll Related: $316,997 (16.9%)
- Local Marketing Expenses: $117,505 (6.3%)
- National Advertising Fund: $35,198 (1.9%)
- Other Marketing Expenses: $3,150 (0.2%)
- Royalties: $137,618 (7.3%)
- Utilities: $71,307 (3.8%)
- Supplies and Maintenance: $82,413 (4.4%)
- Miscellaneous: $99,248 (5.3%)
- Total Operating Costs and Expenses, Excluding Rent: $863,435 (46.1%)
EBITDAR: $1,011,061 (53.9%)
EBITDAR % of Net Revenue: 54%
EBITDAR $/Sq.Ft.: $51.38
- Rent Expense: $357,967 (19.1%)
- Total Operating Costs and Expenses: $1,221,402 (65.2%)
EBITDA: $653,094 (34.8%)
EBITDA % of Net Revenue: 35%
EBITDA $/Sq.Ft.: $33.19
Average of Sq.Ft.: 19,677
Upper Third (Average)
Revenue
- Membership Sales – EFT: $2,548,293
- Other Membership Sales: ($64,978)
- Net Revenue: $2,483,315
- Net Revenue $/Sq.Ft.: $116.10
Operating Costs and Expenses
- Payroll Related: $342,279
- Local Marketing Expenses: $154,187
- National Advertising Fund: $46,448
- Other Marketing Expenses: $3,842
- Royalties: $181,963
- Utilities: $86,125
- Supplies and Maintenance: $97,194
- Miscellaneous: $121,155
- Total Operating Costs and Expenses, Excluding Rent: $1,033,193
EBITDAR: $1,450,123
EBITDAR % of Net Revenue: 58%
EBITDAR $/Sq.Ft.: $67.80
- Rent Expense: $409,226
- Total Operating Costs and Expenses: $1,442,418
EBITDA: $1,040,897
EBITDA % of Net Revenue: 42%
EBITDA $/Sq.Ft.: $48.66
Average of Sq.Ft.: 21,389
Section VI – Planet Fitness Franchise Ratios, Comparables, Computations, and Analyses (Exclusive Content for Platinum Subscribers) ⬇️
- The total estimated initial investment necessary to begin operation of a Planet Fitness club ranges from $1,504,600 to $5,158,500. This is an extremely wide range, with much of the gap due to significant differences in the costs of Fitness Equipment ($43,000 to $1,059,000), Non-Fitness Equipment ($77,000 to $1,037,000), Leasehold Improvements ($1,250,000 to $2,142,000), and Additional Funds for First Six Months ($61,000 to $517,000).
- Using the midpoint of the initial investment range ($3,331,550) and the 2023 average annual EFT revenue for the 2,078 franchised Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023 ($1,832,204), we arrive at an average sales-to-investment ratio of just 0.5:1.
- But keep in mind that the high end of the initial investment range assumes that you will purchase rather than lease the fitness and non-fitness equipment for your location. Typically, franchisees finance the equipment.
- The cost to make down payments on financed required fitness equipment for a new location generally ranges from $43,000 to $318,000 (versus $425,000 to $1,059,000 for an outright purchase). In addition, the cost to make down payments on non-fitness equipment generally ranges from $77,000 to $311,000 (versus $770,000 to $1,037,000 for an outright purchase).
- If you were to lease rather than purchase the fitness and non-fitness equipment, your initial investment range would narrow to $1,504,600 to $3,691,500. Using the midpoint of the adjusted initial investment range ($2,598,050) and the 2023 average annual EFT revenue for the 2,078 franchised Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023 ($1,832,204), we arrive at a slightly better average sales-to-investment ratio of 0.7:1.
- For purposes of comparison, the average sales-to-investment ratio for Retro Fitness is 0.6:1, based on the midpoint of its initial investment range ($1,878,341) and the 2022 average gross sales for the 82 Retro Fitness franchised outlets that were open to the public for more than a year ($1,097,653).
- The average sales-to-investment ratio for Crunch Fitness is 1.3:1, based on the midpoint of its initial investment range ($1,288,000) and the 2019 average gross revenue for the 102 franchised Crunch Fitness clubs operating between 12 and 48 months of operation, which is considered to be the period that clubs develop and stabilize ($1,692,727).
- The average sales-to-investment ratio for Blink Fitness is 0.9:1, based on the midpoint of its initial investment range ($1,363,044) and the average gross sales in Year 1 for the 61 Blink Fitness gyms operated by the franchisor’s parent company, Blink Holdings, in the States of New York (48), New Jersey (8), Pennsylvania (4), and Los Angeles (1) that were open and operating for at least 1 full year as of December 31, 2018 ($1,235,052).
- The average sales-to-investment ratio for Gold’s Gym is 0.5:1, based on the midpoint of its initial investment range ($3,609,375) and the 2018 average gross revenue for the 176 franchised Gold’s Gym units that had operated for at least two full years as of December 31, 2018, rounded off to the nearest thousand dollars ($1,676,000). The estimated initial investment range for a Gold’s Gym assumes the outright purchase of selectorized equipment, free weights, and cardiovascular equipment.
- The average annual EFT revenue for the franchised Planet Fitness clubs open and operating during the 12-month period ended December 31 of the applicable year, increased by 5.9% year-over-year (from $1,730,307 in 2022 to $1,832,204 in 2023). This is on top of the 8.5% increase from 2021 ($1,594,626) to 2022 ($1,730,307).
- The 2023 average annual EFT revenue for the 2,078 franchised Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023 ($1,832,204) was 7.4% lower than the corresponding average for the 235 corporate-owned Planet Fitness clubs that met the same criteria ($1,978,001).
- The largest expense in running a Planet Fitness club, based on the results of the middle third of company-owned Planet Fitness clubs, is rent (19.1% of net revenue in 2023; down from 22.7% of net revenue in 2022), followed by payroll (16.9% of net revenue in 2023; down from 19.1% of net revenue in 2022). The two other major expenses are marketing (8.4% of net revenue in 2023; down slightly from 8.6% of net revenue in 2022) and imputed royalties (7.3% of net revenue in 2023; up slightly from 7.0% of net revenue in 2022).
- All other expenses, specifically miscellaneous expenses (5.3% of net revenue in 2023; up slightly from 5.0% of net revenue in 2022), supplies and maintenance (4.4% of net revenue in 2023; up slightly from 4.2% of net revenue in 2022), and utilities (3.8% of net revenue in 2023 and 2022), are relatively minor.
- The 2023 average EBITDA for the middle third of company-owned Planet Fitness clubs was $653,094, or 34.8% of net revenue (up from $516,232, or 29.5% of net revenue, in 2022). This is a strong number, especially since royalties were already deducted from net revenue to approximate the EBITDA for franchised clubs.
- Given the relatively high operating profit percentage for Planet Fitness clubs (34.8% of net revenue), I am not too bothered by their relatively low average sales-to-investment ratio. Compared to the average restaurant franchise, a much larger percentage of Planet Fitness’ revenues reaches the bottom line.
- Based on the 2023 average annual EFT revenue for the 2,078 franchised Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023 ($1,832,204) and the 2023 average EBITDA percentage for the middle third of company-owned Planet Fitness clubs (34.8% of net revenue), we arrive at an estimated 2023 average EBITDA of $637,607 (up 24.9% from $510,441 in 2022) for the franchised Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023.
- Planet Fitness will charge you a Royalty Fee of 7% of the total gross monthly and annual membership fees payable to you via EFT Dues Draft; and a National Advertising Fee of 2% of the EFT Dues Draft. In addition, you will be required to spend on local advertising the greater of $60,000 or 7% of total gross monthly membership fees payable to you via EFT in a year. All of these franchise fees and expenses were already taken into account in calculating the average EBITDA presented above.
- Based on the total estimated initial investment necessary to begin operation of a Planet Fitness club ($1,504,600 to $5,158,500) and the estimated 2023 average EBITDA for the franchised Planet Fitness clubs open and operating during the 12-month period ended December 31, 2023 ($637,607), it will take the average franchisee from 2.4 to 8.1 years to recoup their initial investment unless they sell the business sooner at a good multiple.
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