Introduction
Fitness is essential to physical and mental health, and every member should feel accepted and respected when they walk into a gym or fitness center, regardless of their fitness level. However, many people feel that working out among other people in a gym environment is daunting.
Any fitness center should be where people of all fitness levels can feel comfortable working out at their own pace, supported in their efforts, and not intimidated by pushy salespeople or other members who may ruin their fitness experience.
Experts even have the term “gymtimidation” to describe how individuals can feel pressured when they try to use free weights or machines at the gym, especially when they first start exercising regularly.
Planet Fitness understood this behavior and started a chain of fitness clubs to provide its members with a non-intimidating and supportive environment at an affordable price. So what is Planet Fitnes? And what makes them so special?
What is Planet Fitness (NYSE: PLNT)
Founded in 1992 by Michael Grondahl and Marc Grondahl, Planet Fitness (NYSE: PLNT) is now one of the largest and fastest-growing fitness club franchises with more than 15.2 million members and 2,254 stores in all 50 states, as of December 31, 2021. Planet Fitness is a franchisor and operator of fitness centers located throughout in the United States, as well as Canada, Mexico, Australia, etc. Once signed up, members have 24/7 access to the gym(s) along with access to tanning beds, HydroMassages, Massage Chairs, and more depending on the type of membership they have.
Planet Fitness is one of America’s largest fitness companies. They are a chain of discount gyms that have small subscription fees. The average monthly cost of gym membership in America, according to Planet Fitness’s annual filing, is USD 52 per month, with some mid-level and higher-tier gyms such as Equinox, Gold’s, Lifetime Fitness, Crunch, and LA Fitness having rates ranging anywhere between USD 300 and USD 2200 per year.
At Planet Fitness, however, subscriptions cost as low as USD 10. So it gives you an idea of just how small their prices are over there, compared to industry equivalents. This exceptional value proposition is designed to appeal to a broad population, including occasional gym users and the approximately 80% of the U.S. and Canadian populations over age 14 which is approximately 250 million people who are not gym members, particularly those who find the traditional fitness club setting intimidating and expensive.
Although it is a common practice at other fitness companies, Planet Fitness doesn’t sell personal training as their business model is to target casual gym users instead of highly motivated ones who are into serious bodybuilding.
Considering this and the low subscription fee charged, the question now is: how does Planet Fitness make its money?
Business Model
Low Membership Fees
Planet Fitness makes it simple for members to join, whether online, through our mobile application or in-store—no pushy sales tactics, no pressure and no complicated rate
structures. Their members generally pay the following amounts:
- current standard annual fees of approximately USD 39; and
- enrollment fees of approximately USD 59; and
- monthly membership dues of only USD 10 for our standard membership, or approximately USD 22.99 for PF Black Card members;
Every member can take advantage of free pizza and bagels once a month and gets free, unlimited fitness instruction included in their monthly membership fee. Their PF Black Card members also have the right to all Planet Fitness stores, they can bring a friend with them each time they work out, and have access to tanning beds and massage chairs, among other benefits.
The rates on offer at Planet Fitness are astoundingly cheap compared to what found at other gym franchises, it is the open arms with which they welcome any and everyone that keeps them going. Customers at Planet Fitness range from 14 to over 70.
Combined, Planet Fitness currently has more than 15.2 million members. Of which, 62.6% of total memberships are Black Card members, bringing their average monthly dues per member to USD 17.63 as of December 31, 2021. The company doesn’t directly state on its annual reports how much revenue membership fees accounted for in 2021, but if we multiply the total members by the average monthly dues per member, we can estimate membership revenue brought in an estimated USD 268 million of revenue.
So the plan at Planet Fitness is to increase subscriptions by making the pricing super friendly. And then, by also targeting the massive number of people without gym subscriptions, the possibilities seem limitless for them. With a population of over 333 million people in America and just a little over 38 million in Canada, the company seems to be on to something if they target about 80% of that number which is well over 296 million individuals. Of course, it is doubtful that they will convert all these persons to customers. But so far, they seem to be making some progress in that regard.
According to Reports, the number of their subscriptions estimate to be around 6,500 per location. Given that Planet Fitness has over 15 million subscribers, and they are increasing at a steady rate. With this remarkable number of subscriptions across their 2000+ venues, one gets the idea of how Planet Fitness manages to stay well afloat.
But, of course, this price attracts loads of people who eventually may not even use the gym but will continue to pay the subscription fee monthly. And this is a scenario that Planet Fitness loves to see playing out – numerous clients paying subscription fees but not turning up to enjoy the benefits of the money spent. For those that even show up, they do not do it quite frequently. It is not uncommon to see people turning up to work out twice a week or less, compared to daily or five times in a week like most fitness would usually do.
For any other business, people refusing to turn up might be a disaster, but for most gyms, not so much. Picture a restaurant, bank, or even a store for a moment: people not turning up would mean bankruptcy and eventually having to fold up. But this is not so, obviously, with Planet Fitness.
You might ask surely many of those people will cancel their memberships if they don’t use it, right? To tackle this problem, Planet Fitness is giving away free pizzas on the first Monday of every month, and free bagels on the second Tuesday of every month, so people might come in twice every month to have a sweat and some free food, thereby having some sense of accomplishment and not wasting their gym membership.
Judgement Free Zone
But price reduction is not the totality of Planet Fitness’ business model. They are also quite methodical in their approach to branding and marketing. For instance, they are specific in how they market their gyms as inclusive, friendly places where everyone can come to, no matter their body type, exercise history, or an absolute lack of it.
Their stores provide a Judgement Free Zone where members can experience a non-intimidating and supportive environment. By establishing a ‘judgment-free zone’ policy, they have positioned themselves as the ideal place for regular people; Average Joes who just want to try to keep fit without judgmental glances or the mental discomfort of working out in an area full of hunky, super-fit bodybuilders and other obsessive, gym rat types.
The judgment-free zone policy is put in place to ensure that acts such as dropping weights, grunting loudly, making noises, and other similar raucous actions you would associate with gyms do not happen at Planet Fitness. These types of actions can intimidate some people and keep some away however, this goes against Planet Fitness’ business model, so it is clear why they would forbid it.
Remember, Planet Fitness intends to attract every random person who wants to stay healthy and not necessarily those who hope to become ripped or super buff like Olympic weight lifters.
The judgment-free policy also operates to the effect that even potential employees at the gym are not judged based on their appearance during the hiring process. That’s how inclusive and welcoming they always want to be!
Lunk Alarm
Part of this is also the creation of a Lunk Alarm at their locations. A Lunk is a not-so-endearing word that describes a tank-top wearing, huge weights-lifting, gym obsessed person; the type you would typically associate with extreme bodybuilding.
At Planet Fitness, the Lunk Alarm goes off when anyone in the building does any loud grunting, dropping weights, or other similar acts. Lunks are not welcome in the judgment-free zones of Planet Fitness all over the world.
Franchise Related Revenues
Planet Fitness can expand at such a speedy rate majorly as a result of becoming a franchise.
Franchising happens when a particular business allows other businesses to trade or do business using its name. Essentially, Business A grants Business B the right to sell products or offer services in its name. Business B is the franchisee, and it pays for this privilege to Business A, known as the franchisor or parent company. Typically, franchising agreements also include the duty to pay specific percentages of profits to the parent company.
So this is what Planet Fitness has done. At the time they were becoming a franchise in 2003, they were only in about five locations. Fast forward to 2021, and they have well over 2000 locations with growth plans for a whole lot more. Here are some of the revenues they make from franchising.
Franchise Royalty Fees
Planet Fitness makes a bulk of its money through royalty fees. In fact, USD 166 million or 34% of Planet Fitness’ total revenue came from royalty fees in 2021. According to Reports, the initial franchise setup fee is USD 20,000. Thereafter, all franchisee owners pay an ongoing 7% monthly royalty fee of gross sales to Planet Fitness Inc.
Selling Equipment to Franchisees
Planet Fitness also makes money by selling branded equipment purchased from third-part manufactures to new and existing U.S franchise store owners. In fact, USD 129 million or 22% of Planet Fitness’ total revenue came from equipment sales in 2021. Planet Fitness says “franchisee-owned stores are generally required to replace their equipment every five to seven years.“
National Advertising Fund (NAF) Revenue
On July 26, 2011, Planet Fitness established the NAF to handle marketing, advertising, and other related programs and requires franchisees to contribute 2% of their monthly membership dues annually to the fund. Although it’s unclear how Planet Fitness makes money from this exactly, the company reported earning USD 52 million from National Advertising Fund (“NAF”) revenue in 2021.
Placement Services
On top of making money from selling the equipment to franchisees, Planet Fitness also makes money from the assembly and placement of the equipment at these franchise locations. According to their annual reports, placement services resulted in USD 10 million of revenue in 2021.
Recent Performance
In 2021, Planet Fitness recorded revenues of USD 587.0 million and system-wide sales of USD 3.4 billion (which they define as monthly dues and annual fees billed by us and our franchisees). They ended the year with approximately 15.2 million members and 2,254 stores. System-wide sales for 2021 include USD 3.2 billion attributable to franchisee-owned stores, from which we generate royalty revenue, and USD 170.7 million attributable to our corporate-owned stores.
Of our 2,254 stores, 2,142 are franchised and 112 are corporate-owned, and Planet Fitness has plans to open more than 1,000 additional stores.
Planet Fitness’s growth is reflected in:
- 2,254 stores as of December 31, 2021, compared to 1,518 as of December 31, 2017, reflecting a compound annual growth rate (“CAGR”) of 10.4%;
- 15.2 million members as of December 31, 2021, compared to 10.6 million as of December 31, 2017, reflecting a CAGR of 9.4%;
Conclusion
Planet Fitness’ business model, which sees them target the majority of the population, clearly works for them.
Because many people are more likely to be out of shape or very inexperienced at their introduction to the gym, the process can be pretty daunting if they have to begin or learn the ropes at most other gym locations. The kind of people you will typically find at these other locations are those with bulging biceps and the incredible. It, frankly, can cause “gymtimidation” which is the fear of going to the gym as a way of avoiding your painful inadequacies.
So by providing that no-judgment zone for this type of people, Planet Fitness seems to have hacked the market to such significant gains. Their membership growing beyond 15 million attests to this.
The meager prices are also perfect for drawing in their target audience. And even though a lot of these people will never use their subscriptions, the price is low enough that they can keep paying up in the hope that they will eventually get the motivation to go and try to get in shape.
Again, this works perfectly for Planet Fitness’ revenue generation because as soon as members subscribe, they rarely ever cancel, even if they hardly ever show up!
