Will They Come? 4 Factors that Matter Most in Calculating Health Club Demand

It's critical to understand several factors when it come to calculating the local demand before opening a new club. These four matter most.

Strategy Cybex Asset Management Column

Before you commit to opening, buying, or investing in a particular health club location, be sure you fully understand the four factors that matter most in calculating the local demand. They are:

1. Population Density

Health clubs thrive in markets where population density is highest. Sophisticated club operators like to site their facilities in markets where there are at least 60,000 and preferably 100,000+ people who are in close proximity to the facility. (Mini-facilities can succeed in smaller markets.)

2. Travel Time

In suburban markets, in which the car is the primary means of commuting to a club, the primary trading area for clubs in competitive markets extends no more than eight minutes for the primary market, 12 minutes for the secondary market of travel time from the club site.

Note that the reference is to travel time, and not to miles or distance. In every market, these two factors are distinct. Note, also, that this implies 12 minutes from either a person’s residence or from his or her office. Numerous health club demographic studies show that upwards of 80% of a club’s members come from within 12 minutes travel time of the facility. Travel should mimic the realistic route used by a local resident to the club site.

Travel times need to be calculated at prime time; that is, at times of peak demand such as between 6 and 8 a.m. or between 4:30 and 7:00 p.m., Monday through Thursday. In most suburban markets, 10-12 minutes travel time means no more than three or four miles from the club site, and it can be as limited as under two miles in dense areas.

In most situations, at least 70% to 80% of a club’s members need to come from within this primary trading area.

In urban markets, where parking space is limited and car travel is constricted, the primary trading area for a club generally extends no further than an eight-minute walk/commute for the primary market and a 12-minute walk/commute for the secondary area from the proposed site.

Because all markets tend to become competitive over time, travel time benchmarks need to be applied even if the market is not yet competitive.

Trading areas need to be plotted precisely. Each intersection point needs to be connected. That polygon is what should determine the primary, secondary, and total markets. Once a club’s trading area is determined, various demographic services can provide essential information, such as: the number of people that live or work within a particular primary trading area, their ages, their marital status and whether they have children, their educational attainment level, their median household incomes, the level of professional/ management occupations, home ownership, etc.

“When household income falls below $25,000, only one out of every 14 (7.2%) people is a health club member.”

3. Household Income

There is a strong correlation between median household income and health club membership. Whereas roughly one out of five members of the American population is a health club member, member penetration rates among high-income segments often approaches 30%.

Conversely, when household income falls below $25,000, only one out of every 14 (7.2%) people is a health club member.

Household income is also a key determinant of club pricing. In general, in markets where the average household income is $75,000 or more, such a community can support dues pricing in the $60 to $125 range. (Naturally, it can also support clubs with lower dues structures.)

Where the average household income is $50,000 to $75,000, the market will support dues pricing in the $45 to $74 range. And where household income is in the $20,000 to $50,000 range, the market will support monthly dues pricing in the $10 to $44 range. In the last 10 years, the widespread availability of low-priced options has exerted significant downward pressure on health club pricing in many markets.

4. Educational Attainment

Educational attainment levels are another key factor in assessing demand. In general, the higher the educational attainment level of people in the community, the higher will be the overall market penetration rates of the clubs serving that market.

To cite but a few examples: the overall health club penetration rate among full-time college students is 24%; the health club penetration rate among men and women with advanced degrees (business degrees, law degrees, medicine, etc.) is 25.2%. Conversely, among men, who earn $75,000 or more, but who did not go to college, the penetration rate is 11.6%

Because of the complexity of assessing demand in any community, it is essential that feasibility studies be conducted by experienced third parties who are not developers, architects, or builders.

This post was excerpted from the IHRSA Health Club Business Handbook, written by John McCarthy and sponsored by ABC Financial.

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Jay Ablondi

Jay Ablondi previously served as IHRSA's Executive Vice President of Global Products—a position that oversaw print and digital publishing, including Club Business International, research, events, and information technology departments.