The CVP analysis is a complex of tools which can determine a firm’s income and other outputs based on the costs and production volume data. The CVP can assist in evaluating profitability of a fitness franchise. As the results show, such business is as risk-containing as any other, but the proper costs analysis, planning, and franchisers support at the beginning stage can make the start-up more attractive.
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The analysis implies that the break-even point is found according to the formula of sales revenue: SR = VC + FC + NI, where VC stands for variable costs, FC – for fixed costs, and NI – for net income. As long as, at the break-even point, the profit is zero, the break-even formula is the following: BEP = VC + FC. Thus, the variable costs are VC = BEP – FC. The fixed costs given are $4,000 within fixed operating expenses and $1,460 within equipment leasing. The break-even number of the fitness center’s members is 300, the membership fee is $26. The break-even point in dollars is 300 members times $26 fee and equals $7,800. Correspondingly, VC = $7,800 – ($4,000 + $1,460) = $2,340. The analysis implies the operating expenses and the leasing are the only fixed costs and that with VC of $2,340, FC of $5,460, and 300 members monthly the break-even point will be reached.
For the monthly sales that lead to $3,640 target net income analysis, the data should be implemented similarly to the provided above. The sales are divided into sales in members and sales in dollars. A number of members for a company to break even is 300. The members’ rate for targeted $3,640 should be additional 3,640 ÷ 26 = 140. The overall number of people who bought the admission to the fitness club thus should be 300 + 140 = 440. As the fee is $26, the sales rate in dollars is found from a basic quantity-times-price formula: SR = 440 × $26 = $11,440. The result implies that the monthly sales rate of 440 members or $11,440 can bring the targeted net income of $3,640 to a company.
For the purpose of precise evaluation, the company indexes including the above should cover the real data of a firm. For example, the variable costs index for a fitness center should match the company’s specification on practice. Such variable costs may be in a form of marketing, to attract new customers, equipment maintenance, cost of proposed fitness products, and utilities, probably water supply. As a result, the fitness business has its own peculiarities and the owner of it should consider them to make the venture successful.
A franchise ownership is an available option provided by several fitness businesses. The Snap Fitness site provides the following information on this matter: the company assists on every level of creation, allows certain flexibility of real estate choice, and supports marketing (“Franchise with Snap Fitness”, 2018). Another firm, the Curves, also has data for entering a franchise agreement: constant support, educational seminars, and useful tools are provided (“Run your own successful business,” 2018). The conditions of the franchise agreement are appealing, as the franchisee can concentrate on other important aspects of the business.
To conclude, the CVP analysis is a highly precise method of evaluating possible output and should be implemented for an adequate estimation of a start-up efficacy. The fitness business is a fast-growing venture that gives a possibility of a franchise to willing entrepreneurs. While the franchise can be an attractive opportunity, the franchisee should build a realistic strategy according to CVP outcomes and receive the franchisers’ assistance to grow his business into a successful one.
Franchise with Snap Fitness. (2018). Web.
Run your own successful business and change women’s lives! (2018). Web.