Fitness Business Case Study – Your Lease

Fitness Business Case Study – Your Lease

Posted on 09. Apr, 2012 by in Fitness Business, Marketing Fitness


I can’t emphasize enough the importance of business FUNDAMENTALS when it comes to running a successful fitness business or any business for that matter. You must KNOW your numbers like the back of your hand. Let me say repeat: YOU MUST KNOW YOUR NUMBERS LIKE THE BACK OF YOUR HAND

In this case….

My friend Irma simply got some bad advice. She is been working her ASS off but no matter how hard she tries she just doesn’t seem to make it. So I made a trip Culver city and Beverley Hills last Friday to  what I can do to help her.

[spoiler]

Sam Bakhtiar: Hey everybody. What’s going on? It’s your main man Seven-Figure Sam here in beautiful Beverly Hills, California but now I’m here with my really, really good friend Irma Sandoval with Carver City Boot Camp. Let’s just say that. And her landlord Michael Weiner.

Michael Weiner: It’s great.

Sam Bakhtiar: So now, I’m going to actually interview Michael because he’s an awesome guy. He’s super, super cool because I’ve been on the phone with him and trying to see why Irma wasn’t making the money that she was supposed to be making and she’s such a hard worker. She has been putting so much into it. She wants to start a family and her business is just not doing what it’s supposed to do even though she’s really, really working 12 to 14 hours a day. So anyway, so here it is. Michael is here. He’s going to – we’re going to go through the whole scenario and we’re going to go. All right. So Irma, you want to scoot over closer?

Irma Sandoval: Sure.

Sam Bakhtiar: Yeah [0:01:01] [Indiscernible]. So Michael, first of all, thank you for being here. Thank you. This is right by your beautiful office in Beverly Hills and I assume that’s probably your – I see it, the 911 Turbo right there.

Michael Weiner: [Inaudible] it should be.

Sam Bakhtiar: Yeah. Let me see. Let me see if I could zoom it in. God man, I love cars. This piece of equipment, this is – you know, OK. So anyway, Michael, we’re on the phone and you didn’t know me from [Indiscernible] and you took the time to talk to me and I explained to you that a boot camp model – we’re selling boot camps between $147 to $197 a month. A $5500 rent is not the business model. A retail place is not a business model even though you’ve gone out of your way and give Irma a great deal but it’s still a retail place and it just won’t work.

You’ve been gracious enough to tell us that hey, you know what – you would let Irma out of the lease. We’re not going after her. So I would just let you explain like the process and what – who is the realtor that actually came in and said that it was OK for you to have a $5500 overhead and all that kind of stuff? So Michael, can you tell us about that?

Irma Sandoval: I can’t comment on what the broker told her about it but I can tell you a little bit about the – I would be happy to answer your questions you got about the process that we were involved in a length of time.

Sam Bakhtiar: OK. Now when the deal was negotiated for your space that Irma leased, do you think that the realtor knew what he was talking about, that he was an experienced realtor knowing what he was doing?

Michael Weiner: It was my impression that the broker was a residential real estate broker and he’s not familiar with the commercial real estate concepts.

Sam Bakhtiar: OK. So he’s basically somebody who sold homes and basically now he came in and tried to do a deal with commercial and obviously you do commercial because you own many, many real estate properties. So was it kind of frustrating to deal with him?

Michael Weiner: I didn’t deal with him as much as my broker did. I had a commercial real estate broker TBM which is a well-known commercial real estate brokerage company. At the time that we met onside with the broker and Irma, it was my impression that he was somewhat not very familiar with commercial real estate.

Sam Bakhtiar: OK, OK. Now Irma, would you mind if I asked you a couple of questions? I just want you to be truthful about everything, right?

Irma Sandoval: Yeah.

Sam Bakhtiar: Now Irma, was it ever discussed that a $5500 overhead may not be the best business model for a boot camp or did you discuss that with anybody that – I just want to be totally honest and I don’t want to put into your mouth because I mean I own 12 boot camps and I can tell you right now $5500 overhead for a boot camp freaks me out.

So when I heard that, I was trying to figure out why because you have such great closing skills. How come you were not making money? In an hour I found out that – less than an hour, I found out that there’s nothing you really can do when you’re having a bad business model.

So what happened? Obviously you were sold something, say a franchise model. But anybody asked you what your overhead was?

Irma Sandoval: Well, what happened was I was going to visit Michael [0:04:36] [Inaudible] real estate. I told my husband –

Sam Bakhtiar: Now, who’s [Indiscernible]?

Irma Sandoval: [Indiscernible] brother.

Sam Bakhtiar: OK. So he did the [0:04:46] [Inaudible].

Irma Sandoval: Yeah.

Sam Bakhtiar: OK.

Irma Sandoval: [Inaudible] was helping me out and [Indiscernible] has helped me out, I trusted and really devoted my time and everything that [Inaudible] says I was going to do because [Indiscernible] was helping me out so much and he’s my mentor.

He was my mentor at the time. I told my husband the rent and he flipped out and I actually – he said that’s more rent. That’s really expensive. How are you going to do this? And I said I know I’m a closer. I can do it. Plus this is what they’re saying. So if they’re recommending it, I’m going to go with it.

So I went in there with the hopes and dreams that I can do it but the business model did say [0:05:19] [Indiscernible] and I thought it was expensive because my husband said it but I was good to go with what [Inaudible]. Unbeknownst to me, it was actually going against me. I was getting burned basically.

Sam Bakhtiar: OK, OK. So all right. So just for the record, I don’t – no matter what our difference is and all that kind of stuff, I don’t think that anybody had any ill intentions.

Irma Sandoval: Sure.

Sam Bakhtiar: You know what I mean? But I really don’t think somebody tried to burn you on purpose.

Irma Sandoval: Right.

Sam Bakhtiar: I just think that sometimes when we try to grow our businesses, whether it’s our boot camp or our franchise or stuff like that, sometimes we get a little more aggressive and really not look at the business model and think that we can just make money out of thin air and we can’t just make money out of thin air.

We got to really, really look at the business model. Michael, would you – I mean you’re a guy who does extremely well. You live in Beverly Hills. You have many, many real estate and all that kind of stuff. What would you say is one of the most important things? Would you agree that the real estate model like for whatever the business is, that will be the first thing you look at?

Michael Weiner: In my experience, I think business owners don’t give enough attention to how important the lease is to the success of their business. It’s a very important part of any business’s success. For example, we have people that rent space for restaurants and negotiate a [Inaudible] lease because they don’t want to commit to long term and they will spend $100,000 to [Inaudible] and in the three years, this is doing well. They want to renew their – they want to stay and they’re really at the mercy of the goodwill of the landlord. So yes, people do overlook the importance of the lease.

Sam Bakhtiar: Now Michael, I got another question for you. Normally, say you weren’t so nice. You were just a regular guy and somebody wanted to vacate your property and that they can’t fulfill the lease. What would happen normally? I mean for the record, you’re a lawyer as well. So if you weren’t so nice with [Inaudible] letting them out of their lease and you – what would the normal process be?

Michael Weiner: The process is they’re responsible for the full contract less whatever damages the landlord [Inaudible] less whatever mitigation the landlord can accomplish through the leasing space.

Sam Bakhtiar: OK. OK. Awesome. Irma? Let’s get this whole thing. This is your man Seven-Figure Sam here in Beverly Hills. Look, when you are coaching somebody, when you’re trying to help somebody, there’s a big responsibility that comes with that. I mean these are people’s lives that we’re playing with here and we got to make sure that all the fundaments are correct before moving forward. I’m in the boot camp business. Any business, it’s not just about getting clients and open up a shop. It’s about having the right business model.

Now if you don’t have the right business model, I don’t care if you’re Michael Phelps. You can’t swim upstream from the current. You cannot do it. It’s an uphill battle and you’re just not going to win. I don’t care who you are. So make sure you have the fundamentals right before you move on to anything. Thank you so much.

Michael Weiner: [Inaudible] be professional. Spend the money and have a lawyer. Review your lease and make sure you have experienced, disinterested real estate [Inaudible] as well.

Sam Bakhtiar: OK.

Irma Sandoval: Thank you.

Sam Bakhtiar: Thank you so much. See you soon. Bye-bye.

[/spoiler]

People that know Irma know that she is one of the MOST energetic, outgoing,  AMAZING  people that you will ever meet.

She kept asking her self why am I not making “6 figures like so and so”
Is there something wrong with me?
Maybe I need to work harder?
Maybe I need to learn more?Irma lost her confidence and really thought it had something to do with her….

After less than 30 minutes on the phone with Irma it was CRYSTAL CLEAR why she wasn’t making money. It took me less that 30 minutes not because I am that great (I am pretty darn good :) but because I followed a simple procedure and looked at her business fundamentals first.

Her rent is $5500 and she only offers boot camps that’s why she is not making money ????

Just like we preach to our clients (at least I do) that no training program in the world is going to overcome a bad diet.

Well…

No sales or marketing skill is going to overcome a bad business model. The numbers have to work it’s that F*cking simple.

I always say “If it don’t make dollars then it don’t make sense”.

I know it seems like I am picking on the “boot camp franchise boys”  but I’m really not. This is waaaaay more important than me VS them. You see this types of things affects people’s lives BIG time and it has affected people’s lives BIG time. Sorry I got to call it like I see it.

As so called guru’s we have to take our role VERY seriously because we are playing with people’s lives and livelihood.

Here Are My Questions:

1) Why would anyone in the right mind recommend a $5500 month rent for a boot camp only model?
2) Why would anyone refer his brother to do a real estate deal if he has no experience in commercial real estate? (This is not the first time)
3) If your location is next to a check cashing joint, a donut shoppe and a laundromat I am going to go out on a a limb and say that’s not the right location?
4) I also learned that this “boot camp franchise” runs Groupon Promotions and get this KEEPS EVERY CENT. Is this really true????

Would Love To Know Your Thoughts On This…..

I am going out on a limb and say that this is not the right demographic

Not The Right Target Market

Facebook comments:

Tags: , , ,

16 Comments

Luis Font

09. Apr, 2012

They run a Groupon promotion and franchisor keeps the funds???? OMG that can’t not be true.

Also, if your rent is above 15% of gross sales you’re toast. In the quick service rest. industry the metric is 10%.

In this case I bet her rent is 30-40% . Looking at her location makes matters worse. She needs to close it down.

What happens, is the franchisee has bought themselves a JOB and not a business if the rent is to high.

They are trapped running the business as opposed to growing it. One reason we’ve been able to grow The Camp Boot Camp is because our rent is on avg. is only 8% of sales. Giving us room to hire and develop bad ass trainers.

Who ever made this decision to sign this lease has very poor judgement. Hope it’s not a long term lease.

Armando

10. Apr, 2012

Wow what an amazing post!

@Irma anyone that knows you, knows that you rock. That being said the numbers have to make sense. You are fortunate that the land lord is letting you out. The beauty is this is a lesson you will never forget. You have what it takes. Keep after it.

@Luis great comment. Thanks for sharing those metrics to use as an evaluation tool and guide. It puts things into perspective.

@Sam thanks for helping @Irma. This is such a great video. I am so surprised the landlord/attorney agreed to let her out and go on the record and do this video. Did you persuade him with the Persian mafia? Lol

AJ Mihrzad

10. Apr, 2012

Epic post, as always the truth prevails…Major props for getting the landlord on camera

Eirith

10. Apr, 2012

Hey guys,

Eirith here. Do the math. $5500 a month means you need 28 clients at $197 a month just to break even on RENT. This doesn’t include payroll. So if you were to have a payroll of $2000 a month, you need an extra 11 clients just to break even. Sounds easy, right? Just 39 clients and you’ve broken even. NO, THAT FUCKING SUCKS. Because with our type of bootcamp business you are limited to the amount of people you can fit in your space. Sure you can do stations, this and that or whatever but the more you fit in one tiny retail space the greater the liability of someone getting injured because you had your hands full happens.

So to reduce that liability, you gotta hire more trainers. Then payroll goes up. then it becomes increasingly difficult to make any sort of LIVING, let alone 6 figures. You find yourself trying to grow the business by phasing yourself out of it but you’re making like $3000 a month off it at best from your location. On top of that her overhead is increased by owing $497 a month to Fit Body Bootcamp. Say she wants two trainers, paying them just $1500 a month each. That brings her overhead to $8500 a month, meaning she needs 44 clients just to break even. That fucking sucks, man. If her rent was at just $2000 a month, then she could have already had a decent 5 figure business that she phased herself out of. But no, she had to fight hard and close up shop because the franchisors sold her some unrealistic pipe dream and made her deluded and thinking that her skills would overcome grossly high overhead.

Plus, don’t get me started on the $5500 a month rent for some ghetto location. Laundromats, check cashing stores, and doughnut shops are HUGE RED FLAGS. You’re better off opening up a dollar tree and have a sustainable business model for that type of clientele than a shitty bootcamp franchise that lies to the people that give them $500 a month.

Go light industrial, pay $2000 a month for 3000 square feet, and charge $197 and climb to 6 figures rapidly instead of having to chase your overhead every month and hope you don’t lose clients. Then pay your trainers like $12 an hour and you’re golden.

Michael

10. Apr, 2012

Happy for Irma, Sam to the rescue and kudos to the landlord for being flexible. Not many LL are from what I hear. I am in the process of locking down my own lease soon so the timing on and metrics shared on this one were great.

t

10. Apr, 2012

Thanks for opening a discussion on this subject! We have the marketing down but this stuff is serious! I’ve seen Irma on other videos. Sorry that happened to her.

It’s exactly these kind of ‘fixed costs’ issues that drove me to building my business online instead of physical.

Mark Mogavero

10. Apr, 2012

Scary, just scary. This is another example of a highly motivated person with passion who needs to buckle down and not be sold something that sounds too good to be true. $5500 per month is a real big nut, and requires a ton of members just to stay afloat.

We always have to vet the people we surround ourselves with, and never make a decision out of emotion. In this lifetime, you earn the things you get. They don’t just happen because of a lead box or a t-shirt.

Eirith

10. Apr, 2012

it ain’t about fixed costs, it’s about not getting into a situation that is going to screw you in the long run.

Just do the numbers in your head beforehand to see if it makes sense. $3500 a month already seems high for a bootcamp location. You can get away with a $5500 a month lease if you’re Apple or Coach, but little old bootcamps cannot compete in that industry unless your name is Bob Harper or Jillian Michaels.

Shit, if you want to save the most money, find some middle of nowhere small industrial building with high ceilings, get a BIG ASS FAN (actual company name), pay dirt cheap rent, fit a bunch of people in one space (you don’t even have to charge a lot but you also can if want) and kill it within a few months.

You don’t even need a bunch of fancy shit (not even flooring). Get some nice colored carpet (yes you read that right), and get the landlord to put the money up for it for that matter. That way you can use kick-ass furniture movers/val slides on your floor. Just put some light padding underneath and you’re good. But fuck spending a ton of money up front, just make your place presentable with clean bathrooms, some motivational posters on your walls, and some nice workout gear (please don’t make your clients bring their own equipment as that doesn’t cut it anymore).

For bootcamps a $3500+ a month rent (unless your space is 3000 square feet or larger) makes no sense. In my opinion bootcamps are more of a numbers chaser business than 1 on 1 personal training because the energy of the camp is higher with more people in it, and it becomes easier to sell once you have a good group going. So don’t make your startup a nightmare by going in and thinking “I’m the shit, nothing can stop me” and ignore the actual FACTS of life, like your landlord not caring whether you can make numbers or not. I’ve been scoping out places for my next location and looking at some light industrial spaces that sell for about $1000-$2000 a month and have square footage around 2500. Are they hard to find? Yes, but GPS exists now and the whole premise of using a location as an advertising cost doesn’t work when our business type doesn’t rely on one-time impulse purchases. We’re in the “I have to think about it” type of customer business. Light industrial middle of nowhere places save you a ton of headaches over the long term and even in the beginning.

Find low rent, find trainers that don’t have the entrepreneurial spirit, pay them low, and sit back and run the show. Get those down and you’re in a good place over time.

Chelsea

10. Apr, 2012

That’s just wrong in everyway. I hope you can help her out Sam, she seems like a great person and just needs some guidance. FYI I’m glad I got out of that model before it was too late. I know things will work out for Irma. Please keep us posted.

Bobby Zuniga

11. Apr, 2012

Props to you Sam for doing this. Both to help Irma out and to get a very important point across. Getting a location of my own as opposed to renting space out of the gym I’m in is something I’m struggling with big time right now. Gyms in my area are charging $800-$1000 a month to train clients 1 on 1, and more if you want to do groups. But, a 3,000 sqft light industrial space will run you $3500/month if you are lucky. And dont even get me started on retail! This really helped put things in perspective though. Thanks for taking the time to put it together.

Also, Luis. Thanks for the numbers you put out there. It makes things MUCH more clear and clean for me.

luis font

11. Apr, 2012

The thing is they’re so concerned with creating a name brand event if it’s at the expense of hurting their boot camp owners.

It’s a proven fact that a boot camp doesn’t have to be in a retail space to succeed.

As a boot camp owner, profits and low over-head are more important than brand visibility.

Alejandra Font

13. Apr, 2012

My previous career was in commercial real estate development, it’s practically unheard of that a landlord would let you off the hook from a lease! That’s awesome, good for you Irma.

Kaiser

13. Apr, 2012

with so called experienced coaches, something like this should never have happened. But these guys Irma took coaching from obvsiously weren’t experienced.
Want to point out something she talked about, which is real common from what I see in the internet marketing/success industry, and that is that positive thinking and hustle can somehow defy reality and overcome a bad business model or bad business smarts. That if you’re not succeeding, you’re not thinking positively enough. Sure, a lot of business is attitude. But there are a lot of hard numbers at play here, and they cannot be overcome just by hustling harder or being positive. The guru Irma talked about in the video gave a presentation at the last even of his I went to, saying in those words how “if what I say doesn’t work, you weren’t positive enough – it was your negative conditioning, yada yada”. He forgot to mention that knowing the numbers and a sound business model plays a huge part too.

Eirith

14. Apr, 2012

Yeah, when a guru like him makes a comment like that, it’s just a cop-out to say:

“My advice sucks and if you find out for yourself, I need to make sure you don’t realize I’m the one that steered you the wrong way.”

Awesome issues here. I am very satisfied to look your post. Thank you a lot and I’m looking forward to contact you. Will you please drop me a mail?

Leave a reply

You must be logged in to post a comment.