Due to $14,000 in equity and a $24,000 bank loan, they must find alternate ways to raise SSL 7,396 or decrease start-up costs (Exhibit Monthly costs for the business will be roughly $9,937 (Exhibit 8) with each client generating $540 per month in revenue (Exhibit 7). Taken together, Elite just have a minimum of 18 clients per month to remain in business (Exhibit 8). In order to draw in new clients, the Elite building is within walking distance of multiple businesses, giving easy access to business professionals as a target market.
As most competitors focus on women, focusing on professionals might allow Elite to grow a niche market. Decision Criteria Attain the required startup costs of $17,396 by October 1 , 2005 Retain a minimum of 18 customers each year to break-even Option 1: Asking Members to Pay Prior to Official Opening Since there is a shortage of cash required to start the business, which is about 17,396, Elite must find a way to finance their company to get through the initial startup cost (Exhibit 1). In this option, we would be asking our 20 anticipated members to pay their 25% deposit upfront, prior to our official opening date.
By doing so, we can generate $14,400 dollars (Exhibit 2). This can lower the cash gap required to start up the company. However, we still have not reached one of our decision criteria because we are still $2,996 short of the cash required. Although this option seems promising and can help us generate a large sum of cash for our initial startup at close to no cost, whether or not the clients will pay is a different story. The main problem is that, when we implement this option, we do not have a facility to show our clients.
This makes clients feel that they are paying for nothing and may discourage them to pay up front. Moreover, the money generated within this option is based on the belief that there would be 20 members that are going to join them during their initial startup. This figure may be too optimistic because, if their new facility does not offer as many services as Body Word does, then their clients may not follow them over. Option 2: Financing Weight Training Equipment Though Meaner and Crucial would prefer to pay for everything COD, there are low interest or interest free alternatives.
Fitness Depot, which has a location in London, offers multiple financing options. The first we looked into was a 12 month plan that offered no interest or additional fees, as long as the sales price was paid in full within 12 months. The second offered 24 months, and no interest terms were specified so 5% interest was assumed. Between the two, the 24 month plan is more beneficial to Elite because it allows them to spread the payment over 2 years’ worth of revenues. This option would cost $1, 125 in interest, in addition to the $21. 00 price of the equipment. This option meets the decision criteria of attaining the required start-up costs, as it lowers the initial investment needed from $55,000 to about $35,000. Break- even for this option, covering the $1,125 interest expense, is selling one additional client a package of 48 sessions. All profits Elite generates will be as a result of having this equipment, as without the equipment the business would not even open. Risks involved with financing include not being able to meet the required monthly payments.
In order for that to happen, however, Elite would have to be operating with less than 18 members per month. Exhibit 3 discusses this option in detail. Option 3: Marketing Elite wants to keep its marketing costs low. It was decided that $3,000 should be the budget. This has a low breakable of 50 sessions or TV. ro 48 session packages. The marketing budget would consist of 2,500 print brochures, 100 custom logo water bottles, and 50 custom logo t-shirts. The print brochures would be distributed by the owners to nearby business buildings to reach the target market of business professionals.
They can also ask nearby health stores to feature the pamphlets on their counters. The water bottles and t-shirts would be given clients upon referral sign ups. They can also be used for other promotional reasons. Due to the industry heavy reliance on word-of-mouth, it is assumed that the brochures will result in low conversion. However, it would help to increase Elite’s awareness within its desired market. If 20% of initial customers sign up one friend by the end of the first year, the water bottles and t-shirts would have an ROI of 2. 7%. This would result in an additional $5,760 in sales. The biggest risk in this option would be the money spent on brochures. It would have little to no conversion to clients. Some clients may find the t-shirts and water bottles as not worth referring friends to Elite. Option 4: Leasing the Equipment Option 4 is to reduce the start-up cost by leasing the equipment. According to the information provided by a fitness equipment provider, the leasing rate is calculated to be 2. 58% per month. Flexi Commercial, 201 5) Total cost of leasing is calculated by matching the useful life of the equipment, where the additional cost incurred amounts to $114,120. The cost is calculated to be very high since weight training equipment provides a useful life Of 20 years. Start-up cost will be reduced by $17,398. 08 in the first year with this option, which yields a ROI of 1 . 23%. Breakable for this option is 57 48-session packages. This option involves high risk and low return as it cost almost 5 times more than purchasing the equipment, therefore, should not be considered.
Option 5: Client Retention/Renewal This option will offer clients a free meal plan upon renewal of their personal training sessions. It is assumed that 30% of the 20 clients will renew due to he free meal plans, which will generate $17,280 in revenues. The meals plan will cost Meaner and Crucial their hourly wage plus printing costs for $106. 26 for 6 clients. This will put Elite in a good position compared to the alternative of nutritionists, who offer meal plans for an average of $77 per client (Microfilmed. Com, 2015).
Vitiation explains this has been the most effective way to get membership renewals and increase client satisfaction by 30% since other boot camps in the area do not offer it (vitiation’, 2015). This will achieve an ROI of 16,162% with a breakable of 1 client package. This is a high reward and low risk option that will help Elite grow a loyal customer base because clients will be able to achieve even better results due to a controlled diet. However, a potential risk in this option is of clients developing a negative image of Elite when they do not follow their meal plan and thus don’t receive the results they expected.
Recommendation & Action Plan It is recommended that Meaner and Crucial implement options 2 and 5. Through option 2, by financing equipment, we are able to save $20,000 and are able to meet the criteria of generating the start-up costs. Through option 5, we are able to retain 6 clients. Since Elite anticipates to have 13 members of its initial 20 renew as lifetime members after their third package, these additional 6 (if they were non-renewing otherwise), would allow us to meet our retention criteria of 18 members.