Date: September 17, 2019,
Subject:Elite Personal Training
Definition of Success
To be profitable from the very first year of operations and become the premium training facility in London, Canada.
There are two major issues that the entrepreneurs were facing.
- How to Finance the business with limited capital?
- They are not expected to have enough number of customers at the start of the second year of operations to sustain the company.
The business would have several strengths as evident from Exhibit 4. The customer would receive individualized attention, the gym would be located in a downtown area and highly trained management. The major weakness is the lack of funds and major risk is from the competition.
On the other hand, the industry does not seem to be very attractive for now because the competition is intense, switching costs for the customers is low, there are many substitute products and services and a high switching costs as evident from the exhibit 5.
At the planning stage, both entrepreneurs, Craciun and Menard have only 38,000 dollars in cash that also includes a loan of $24,000. However, they need a total $55,396 to pay the startup costs (Exhibit-1). They either need to decrease the startup costs or find a funding source.
According to the competitor pricing provided in the case, the competitors are charging anything between 50 to 85 dollars for a single session and many of them also require a monthly fee for retaining the membership of the gym or facilities. Elite Personal Training can charge something between these two figures for a superior experience. A fee of $65 per session is suggested without any monthly fee.
As per our calculations regarding packages sales for the first year, it is expected that 58 packages will be sold in the first year on the basis of 23 expected switching customers from Worx, calculated as follows,
According to our projection, 58 packages will be sold in the first year. The first year’s annual fixed cost would be $105,792 and if we exclude the first month salary of the entrepreneurs of 5,000, the total fixed costs would be $100,792. The variable cost per session, as shown in exhibit 3. Elite personal training would be required to sell at least 34 packages in the first year of its operations by excluding salary for the first year (exhibit 3). As the projections show that the number of packages expected to be sold by the Elite Personal Training should, therefore, sell 34 packages yearly to the minimum to stay viable (exhibit 3). As the number of packages expected to be subscribed is more than the breakeven point, therefore the company would be a viable investment and should be persuaded.
The suitable segment for Elite personal training is apparently business professionals because they have higher buying power with higher discretionary income whereas for students it’s difficult to pay the session fee. The company will charge a price of $3,120 ($65 x 48 sessions).
If both the entrepreneurs can bring 23 clients from the Body Worx and they each need to work 35 hours in a week (23*3= 69 client hours and so 35 hours each), they can accommodate three more customers. As the variable cost is quite low, even $3 per customer per session become quite large in terms of profitability.
Any option should reduce the startup costs to $38,000
Maintain a customer average of at least 36 per year to remain viable
Gupta, N. (2007). Elite Personal Training. Ivey Management Services Version: (A) 2007-02-01
|Total Funds for Startup||38,000|
|Weight Training Equipment||21,600||38.99%|
|Training tools (Jumprops, weight balls etc.)||500||0.90%|
|Credit/Debit card machine security deposit||5,000||9.03%|
|Total Startup costs||55,396|
|Cleaning Costs (240*12)||2,880|
|Interest per year||457|
|Total Annual Fixed costs||105,792|
|Expected Annual Profit = (58-36)*2976||65,472|
|Variable cost per session and Breakeven Point|
|Total Variable Cost||144.00|
|Variable cost per sessions||3.00|
|Price per session||65.00|
|Margin per session||62.00|
|Margin per customers||2,976.00|
|Breakeven number of customers (48 session set)||35.55|
|Breakeven point with 100792 fixed costs||33.87|
|Strengths Individual attention to each customer Highly trained management Located in proximity to target customers||Weaknesses Lack of funds for startup Low brand image being a new organization|
|Opportunities Niche market for the personal trainers for training two clients at the same time.||Threats Stiff competition Similar services offered by independent personal trainers|
Exhibit 5- Five Forces Analysis
Threat of New Entry- Strong Force
Threat of New entrants is a strong force because setting up a gym does not require much capital and then the customers can easily switch to other service providers if they are not satisfied with the services of Elite Gym.
Bargaining Power of Customers- Strong Force
The Bargaining power of customer is a very strong force because there is almost no switching cost. Then there are a lot of gyms fighting for the share of a small pie. Customer loyalty needs to be built in order to reduce their power by even stronger level of service.
Bargaining Power of Suppliers- Week force
The suppliers are mainly equipment providers and the bargaining power of suppliers is thus very low as Elite Personal Training can purchase equipment from some other vendor if not satisfied.
Threat of substitute products or services- High
There are many other entertainment and sports forms that are providing similar services and then there are so many herbalists that are providing weight loss guidance and herbal medicine and therefore the threat of substitute products or services is high.
The competitive rivalry is very strong with all kind of services and products are being provided by the competitors which are already on the rise.