As a small business owner, you may find yourself in a situation in which you need to increase your capital to invest in your gym or studio’s growth. It may be time to purchase new equipment or you may be looking to move to a larger space—whatever the scenario, as a small business owner, there are myriad reasons why it is beneficial to have a few go-to tactics to increase capital.
We’ve explored four possible ways to increase capital and what you should know about each to give you a solid idea of whether or not this tactic is best for your needs.
1. Charge for yearly or lifetime memberships up front
Selling a yearly membership or even a lifetime membership upfront will bring in capital upfront if you need it, according to Jason Feinstein, founder of Buckeye Strength & Performance. He’s seen gym owners in need of capital implement this system in order to motivate clients to pay a lump sum for a long-term membership at a discounted rate.
What this works for:
If you are in need of cash sooner rather than later, this is a way to get capital now. Maybe a machine at your gym broke, and you need a replacement quickly, or maybe it’s time to expand the studio—whatever the situation, this tactic can work if you need cash flow that is not part of your typical revenue stream. Charging for a full year or even lifetime membership upfront will certainly work as a short-term solution.
What to consider:
In order to incentivize clients to commit to paying for a year or longer, you will have to give a discount on the cost. Jason advises that anyone using this tactic keep in mind that this means that you are discounting your value and reducing the recurring monthly revenue over the long-term. This means that you may have less revenue coming in down the line unless that investment is going to draw in new clients, and increase revenue, later.
2. Get more clients in the door with promotions
It’s no big secret that the more clients you have paying for memberships, the more cash flow you have. If you are looking to increase the number of clients, running a promotion is always a good way to drum up new business at your studio or gym.
Marty Lavine, owner of PUSH GYM in Denver, CO, shared some of his tips for running promotions, which is something he has done at his gym, especially with corporate competitors like Orangetheory moving in and encroaching on his client base. While PUSH is a fixture in Denver, Marty has used several types of promotions to get new clients into his gym in this highly competitive area:
- Paid promotions like running ads on Yelp, Facebook, Instagram or Google
- Discount promotions like posting classes on websites like Groupon or Living Social
- Word-of-mouth promotions in which you incentivize current clients to bring a friend in exchange for a reward like a discount or free swag
What this works for:
- Paid promotions on Yelp, Facebook, Instagram or Google will put your name in front of a high-volume of people quickly, which can be a great way to make your brand better known. You also have a lot of control with targeting on these platforms to focus on a particular area around your gym or a certain client profile that is more likely to convert.
- Discount promotions on Groupon or Living Social is virtually guaranteed to bring in many new clients quickly. Marty has seen as many as 150 new people come into his gym after running a promotion on Groupon with a discount package of classes.
- Word-of-mouth promotions work well because they encourage your loyal clients to recruit and give them a sense of belonging at the gym on top of bringing in clients who have more potential to stick around since they are friends with current members.
What to consider:
- Paid promotions on Yelp, Facebook, Instagram or Google can be costly, and, according to Marty, do not always have the best return on investment as there is not guarantee that people seeing the ads will become clients after seeing an ad for your gym.
- Discount promotions on Groupon or Living Social can flood your studio or gym with new people who are often just testing the waters without planning to stick around, and the sudden influx of new people can cramp the style of your regulars.
- Word-of-mouth promotions do not allow you to reach the volume of people that online promotions can offer, so it may be a slower cash flow even if it is a lower-cost more sustainable marketing investment.
3. Take out a business loan
The fail-proof way to increase capital for a major investment like opening a second location or expanding your current location is to take out a loan. A loan will give you a significant amount of capital upfront that you will then have to pay off in monthly increments.
What this works for:
A loan is a guaranteed way to get capital for bigger investments like purchasing new equipment, hiring new staff, or paying for anything that has a steep upfront cost necessary to the growth of your gym or studio. Interest rates tend to be much lower than trying to put these costs on a credit card with higher APR rates and the risk of late payment fees. Additionally, a business loan will keep you from mixing your personal and business finances, and your accountant will thank you for this.
What to consider:
With any loan, you will have to pay interest and will end up paying back more over time, depending on the type of payment plan you choose. Additionally, you must qualify for a business loan by passing a credit check, and you may have to meet other requirements such as being in business for a minimum of one year or meeting certain revenue quotas monthly or annually.
4. Work with an Investor
Working with an investor is a good option for raising a substantial amount of capital, especially if it is for a major investment like trying to take your business to the franchise level or to expand your brand nationally. If you have never worked with an investor before, this should be carefully considered and strategized before approaching any private investor or institutional investor because this means entering a business partnership, which is a big commitment.
What this works for:
When a promotion or a loan is not going to provide the amount of capital you need to take your business to that next level, the best option will be to find an investor that is compatible with your business goals and vision. Depending on the type of investor you choose, an investor can provide another level of support as a partner that can offer valuable business advice and direction that you may not have had access to otherwise!
What to consider:
Receiving capital from an investor means the entity providing the financial backing for your business growth may now be entitled to have a say in how you realize that vision. This may mean that the investor wants to be a part of branding decisions, hiring decisions, marketing tactics—essentially, they may want to be at the table when any decision involving that capital they have provided is at stake. Or, they may only want a briefing on your growth at the end of each quarter.
You need to do your homework and take your time determining what you need and want for your business before going out to pitch to investors. Apart from getting necessary capital, you need to be sure that you are receiving the type of support from your investor that you desire for your business and vision, whether you prefer a more hands-on or hands-off approach.
