Introduction
As an owner or manager of a health, fitness, and sports club, increasing the value of your business is a key goal. Understanding basic valuation concepts and approaches is crucial for strategic planning and day-to-day decision-making. Let’s start with an overview of the fitness industry.
Key Health, Fitness, and Sports Club Statistics
According to a 2023 report by IBISWorld, there are over 50,000 health and fitness centers in the United States, generating approximately $12 billion in annual revenues and employing over 320,000 people. The industry remains highly fragmented, with most clubs being small businesses, averaging 7 employees and $400,000 in annual sales.
Value Drivers for Health, Fitness, and Sports Clubs
To understand what factors impact the value of a fitness business, consider the following key value drivers:
Historical Financial Performance
- Profitability over the last three years.
- Margins compared to industry averages.
- Trends in revenues and profits.
Projected Financial Performance
- Future revenue and profitability projections.
- Impact of market changes and industry growth.
Strong Member Retention
- Membership retention rates at or above 70%.
Strong Niche Focus
- Specialization in specific demographics (e.g., women, young professionals, seniors).
Location
- Market size and affluence.
- Competitive positioning within the market.
Facilities
- Modern, well-maintained, and well-designed facilities.
Quality Fitness Programs
- Diverse and high-quality programming (e.g., group exercises, personal training, aquatic activities).
Technology
- Adoption of modern technology (e.g., club management software, social apps, wearable tech).
Valuation Multiples for Health Clubs
Rules of Thumb
- Business value as a percentage of annual gross revenues, plus inventory (not recommended).
- Business value as a multiple of EBITDA, plus inventory.
More Accurate Valuation Techniques:
Multiple of Discretionary Earnings Method
- Suitable for smaller, owner-operated fitness centers.
- Includes net profit, owner’s salary, and personal expenses.
Discounted Cash Flow Approach
- Projects revenues, profits, and EBITDA for the next five years.
- Discounts future cash flows to present value using a risk-adjusted rate of return.
Capitalized Excess Earnings Method
- Useful for asset-intensive clubs (e.g., tennis clubs owning real estate).
- Allocates purchase price between hard assets and goodwill.
Conclusion
For an accurate market assessment and valuation, consult a mergers and acquisitions advisor like Sports Club Advisors. We also provide a free valuation of your business here: Free Opinion of Value
If you want to discuss selling your sports or fitness-related business, or just have questions, contact Jim Bates at jbates@sportsclubadvisors.net or schedule a free Discovery Call.