The keys to success in achieving our goals are:
- Positioning ourselves in the market as a high quality operator.
- Taking care of our customers so they can take care of us.
- Managing our finances in order to enable capital growth.
Business Description
Cyclub is the first health club in Lebanon where people can socialize, perform their favorite sports, eat their desired food and relax in a fun and entertaining atmosphere. Our main aim is to provide excellent services for the needs of each segment of our customer. This business will cost us at start-up $795,000, and a monthly expense of around $43,767. All this is accomplished by:
- Providing value for money services.
- Conducting professional and periodic staff training.
Cyclub will be operating 24 hours a day, 7 days a week. Customers subscribe to monthly or yearly memberships in order to use our three main services offered; fitness, beauty care and child care. It can handle a capacity of 350 members per month. We expect to earn a profit of $375,000 (25% of our capital) in our third year of operation.
The Product
Cyclub is located in downtown Beirut, covering a rented area of 1,800 square meters of land, including a three-floor building and a planted external area. It offers various services under the title of health club. These include, in addition to the Fitness center, a beauty center and a Child Care center. Also, there would be a fast food restaurant.
Fitness Center
The exercise classes are the most popular activities at Cyclub. Led by professionally trained instructors, the group exercise classes enable customers to enhance their cardiovascular conditioning, strength and flexibility. A variety of services is offered in this center. These include the latest cardiovascular resistance equipment, exercising equipment (treadmills, bicycles, weights...), Aerobics and spinning classes (high/low impact, step, kick boxing, stretching), multipurpose dance, personal training, post and pre-natal training exercises, swimming and aqua-aerobics. A basketball area, billiard room, Ping-Pong area, squash and tennis court will also be part of this center.
Beauty Center
Here, massage therapy, water-jet massage, massage beds, oxygen rooms, sauna, jacuzzis, steam rooms, solaria, stress management, hypnotherapy, psychotherapy and other relaxation techniques will be available. In addition to facial treatment, body and skin care treatment, peeling and attenuation of wrinkles, age spots, freckles, scars, tattoo (lip, eyes, eye brows…), hair removal (laser or ordinary), nail treatment (manicure and pedicure), cellulite treatment (ionized and sympathoform techniques), make-up and hair dresser. All these will be carried out by trained professionals. Also, treatment and make-up products will be sold to customers for home-usage.
Child-Care Center
Since our target reaches the entire family, this would be an essential center in Cyclub. The crèche (from age 3 months to 5 years) is staffed by qualified nursery babysitters and is open 7 days a weeks for members' children. There are enormous variety of classes, activities, events and courses for children of all ages which satisfy their sporting, educational and entertainment needs.
Ownership Status
Cyclub is a privately held Limited Liability Company run by Tarek Taljeh. The rest of the partners are Darine El Kurdi – executive manager, Mira El Moatassem – executive manager, and Twiggy Shmeissany – financial manager.
People
Management will consist of the General Manager, 2 Executive Managers, and a secretary. The financial department will have a Financial Manager and 2 accountants. There will be a Sales and Marketing Manager with a staff of 5, and a Human Resource Manager with a secretary. As for the three centers, there would be a department manager on each center, with a support staff of 4.
The Fitness Center will have 4 exercising trainers, in addition to 3 specialized trainers for the extra activity sessions. The Beauty Center will have 6 beauticians (body and face treatment, make-up, and hairdresser). The Child Care Center will have 3 babysitters. Three technician will provide technical maintenance and cleanliness will be maintained by 10 janitors.
With respect to the fast food restaurant, it will be operated and managed by an external entity, specialized in catering.
The Market and Competition
According to market research that we performed on a sample of 100 people, it was noticed that of the 54% who have joined a health club only 2% considered the services offered as excellent. People referred the causes of dissatisfaction to the fact that there are always facilities they wished to have in the health club according to their varying needs. A child day-care center and a beauty center were mostly desired, in addition to the fitness center.
Forty six percent of the sample did not join a health center because of time constraints, financial problems or just because they were never motivated to join a health club. We also noticed that 22% never considered the option of going to a fitness center. Based on these statistics we found out that what people really needed in a 7-day, 24-hour health club that can also meet their individual needs each alone.
The marketing department at Cyclub would study the demographics and needs of our consumers by asking different age groups from fifteen years and above.
What was inferred is the drastic shift in consumers' trends and lifestyles. According to the sample, most people did not have enough time to subscribe in a health club although they think it is essential to have such an activity. Therefore, The Cyclub's management thought of implementing a 24-hour, 7-day strategy.
In order to match consumer needs and wants efficiently and more selectively, Cyclub divides its consumers into different segments and targets a variety of subgroups. Our dominant segment is that of above average social standard people. After our market study, and in comparison to other similar Health clubs, which will be mentioned later, we have reached these numbers for our pricing:
Prices
- $180 as a monthly subscription fee, expected 35% of customers/year.
- $450 for a three-month subscription fee, expected 25% of customers/year.
- $900 for a six-month subscription fee, expected 20% of customers/year.
- $1,900 for a year-subscription fee, expected 15% of customers/year.
- Guest prices are $25 per person, expected 5% of customers/year.
- Subscription fees include all individual activities in the Fitness center, in addition to standard training activity sessions of different types (Aerobics, dancing..)
- All extra training activities (dance, Tae Kwando..) cost $15 per session.
- Prices related to the body and face treatments average to $75 per treatment session.
- Manicure/pedicure average $20 per session.
- Hairdressing starts with a minimum price of $30 per do.
- The Child Care Center is free of charge for members whose subscription has been valid for three consecutive months.
For 350 members per month, we expect the average customer to spend $150 per week at Cyclub. This will generate an average of $210,000 per month or $2,520,000 per year.
Cyclub’s competition lies mainly with other similar health clubs. Our advantage is that we are located downtown, next to many business outlets.
Our review of the market concludes that there are four health clubs that can be considered in direct competition to the proposed new venue in the Beirut area.
Lifestyles:
Capacity: 200/month
- This health club appeals to all people from a certain social background.
- It offers approximately the same services Cyclub is offering.
Panacea
Capacity: 170/month
Inn Shape
Capacity: 110/month
Nautilus
Minimum subscription of 3 months.
No swimming pool.
Capacity: 95/month
Restaurants and Beauty Centers
A major competitive force from other companies and places that offer substitute services to ours are the very large number of restaurants who will be in direct competition with our Food Center. Our Beauty Center will face competition from other beauty salons and places.
Expected Business Turn-Over and Assumptions
Equipment:
All fitness, exercise and beauty equipment will be purchased from one supplier and paid for on credit, by monthly installments for 4 years. Childcare equipment will also be purchased on credit, for 4 years. All equipment will add up to $300,000. It will be purchased 1 month prior operating. A down payment of $80,000 will be paid. Around $55,000/year will be paid to the supplier.
- The equipment will be depreciated in a straight-line method over a period of 5 years, $60,000/year.
- Furniture and offices will cost us $30,000, which will be depreciated over 6 years, or $5,000/year.
Labor:
All labor and staff will be paid on a monthly basis. Sales reps will be paid a 5% commission on all clients they bring. Body estheticians will be paid a 20% commission on sale of creams and home-used treatments.
- These expenses will amount to $35,000/month.
Inventory:
Four different brands of beauty creams and treatments will be used and sold. An inventory of $15,000 will be purchased on start up, including manicure/pedicure tools, treatment tools and towels and hygiene tools. Payment will be made upon purchase. Once the Beauty center starts operating, inventory will be purchased according to the turnover rate of the products. It will account to an average of $1500 per brand per month. All purchases will be paid for in cash.
With respect to make-up and make-up tools, 2 brands will be used and sold. Start up inventory will account for $8000. An average of $900 per brand per month will be purchased, in accordance to the selling rate of the products.
Miscellaneous:
Since most of the machines used operate on electricity, utility (including electricity, telephone and water) expenses will add up to an average of $2,000 per month.
Total:
- Monetary monthly expenses will amount to $43,767, excluding the pre-paid rent.
- Thirty percent of income will be generated from membership subscriptions. Forty percent of income will come from treatments and product selling, body and facial care, make-up and hairdressing at the Beauty center. About 7% will come from the extra training activity sessions. The remaining 13% will be generated from the fast food restaurant, which will be operated and managed by an external catering specialist. Cyclub will gain a percentage income from this operation.
- In the first year of operation, we expect to have 100 members, generating a minimum of $18,000 in subscription and around $60,000 monthly in other services, adding up to a total of $78,000/month or $936,000/year.
- By the second year, we expect to have 350 members. This will generate $210,000/month or $2,520,000 per year.
- To cover up our first-year losses we will renew our capital with $800,000.
- The club expects to breakeven within the first 3 years of operation, achieving an overall ROE of 15%. From the third year on, we expect to achieve a yearly 25% ROE.
Time Action Plan
The set-up phase will begin 3 months before the start-up date.
Since we will be renting the premises, there will be no construction. The building is located in downtown Beirut, where rent costs $600/meter squared. This means $1,080,000 per year. Although $540,000 will be paid as a 6 months pre-paid rent, $270,000 (for 3 months) will be considered as a pre-operating expense.
Advertisement cost will amount to $25,000.
Other pre-operating costs will include labor, transportation and utility costs. These would amount to $6000. Screening and training of personnel, as well as managerial preparations will cost $90,000 for 3 months ($30,000/month).
Since we will be borrowing $124,000 from the bank prior to operations, an interest of 10% will be paid for the first month of usage, i.e. $1000. This long-term bank loan will be used to cover our start-up costs and excess monthly costs. By the end of the first year of operations we will add new capital of $800,000 in order to cover our losses.
These pre-operating costs will add up to a total of $392,000.
We, as partners, will be putting in as equity $700,000, which will be used to pay at set-up the rent, advertisement, transportation and labor, utilities, personnel, start-up inventory and down payment for equipment.
Start-up costs:
Pre-paid rent (6 months) 6 x 90,000 $540,000
Decoration $30,000
Advertisement $25,000
Transportation and labor $3,500
Utilities $2,500
Personnel $90,000
Treatment inventory $15,000
Make-up inventory $8,000
Interest $1,000
Down payment for equipment $80,000
Total start-up capital needed $795,000
Overall ROE: 18.2%
